Montana Viewpoint

January 17, 2005

Lots of politicians are sincere about giving tax breaks to businesses, but often the kind of breaks they are contemplating discriminate against some business sectors and in favor of others. Take the vaunted business equipment tax, formerly known as the “personal property tax” for some reason lost to history.

Since the mid 1990s the tax has been decreased by 67%, and could possibly be eliminated. This tax break has helped mining companies, logging companies, oil refineries, and any other type of business that uses equipment in the manufacturing or extraction of a product. It does precious little for small businesses like clothing stores and other small retailers because the only kind of equipment they might have is a cash register and computer.

Let your mind wander up and down the main street of your town and picture the locally owned businesses that line the street. Where I live it goes; drug store, real estate, gas station, bar (closed) café, liquor store, natural food supplement store, hardware store, and bar (open). Of all of those the café comes closest to having expensive equipment, cooler, stove, grill, etc. You can cut the business equipment tax all you want, but it won’t make much of a difference in their bottom line. It could raise their local property taxes, though, but that’s another article.

OK, then; how about a property tax break for small businesses? Businesses pay tax on the building they occupy and the lot that it’s on, and they could stand to have them lowered. But because only the property owners will get a tax cut, let’s take a walk down Main Street again and see who rents and who owns. To cut it short, here it’s about 50-50. So although all of the property owners get a break, only that half of the businesses that own their building get one; unless in some unheard of act of charity the building owner lowers the rent for the business he rents to.

In efforts to encourage new business formation, “new and expanding” businesses can get a temporary tax cut from the county, and there are also efforts to lower their property tax permanently. But there’s got to be some criteria, right? So perhaps only businesses that add ten employees are eligible for the break. What’s that make the guy who creates only 5 new jobs? Can’t make the cut and out of luck is what.

Perhaps there is a special incentive to encourage a particular type of business, like computer chip manufacturing. Can you tell the rancher that his profession is less worthwhile than a hi-tech industry? How about the guy with the gas station or the small manufacturer of rifle barrels? Same story.

The interesting thing is that in America we put a high value on competition and individual incentive but go out of our way to give one person an advantage at another’s expense. Last week Senator Conrad Burns hit the proverbial nail on the head when he pointed out that the job of government is to build and maintain the infrastructure (transportation, communication, education, and public safety) and get out of the way so private enterprise can get to work.

That’s called the investment model of economic development. If you want to see a stark comparison of the investment and tax cut philosophies side by side, North and South Carolina are as good as it gets. It’s not a “pure” comparison, because in addition to investing in infrastructure North Carolina has offered incentives to particular companies, but there is a big difference in the economies of the two states, and North Carolina is the winner by a furlong.

So, try as we might, we won’t devise a tax break that will benefit everyone, let alone be fair, but a good solid physical and educational infrastructure does benefit everyone. Montana’s tried everything else, why not do it right for once.

Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620