Montana Viewpoint

April 4, 2005

I don’t know of anyone who pays their taxes gleefully, but most of us understand that, “taxes are the price we pay for civilization” It may seem a rather high price at times, but it is the price we set ourselves through the election of our legislators and local government officials.

All we ask is that the money be spent wisely and that we are all taxed fairly. In fact, fairness is one of the principles of modern day taxation policy, but that’s in theory; in practice it’s a lot different.

Since the beginning of the income tax in the United States, some taxpayers, identical in every aspect but one or two, have been treated differently. They are people who contribute to charity, and people who buy homes on credit. These are both instances where tax policy is used to encourage certain economic or social behavior on the part of the taxpayer.

It’s hard to quibble that encouraging charitable giving through tax policy is unfair, but allowing homebuyers to take a deduction on mortgage interest is. Today, as in the early 1900s, a person’s single biggest purchase is their home, and few are the people who don’t borrow to pay for it. Whether allowing mortgage interest deduction was spawned by idealism or to benefit certain business sectors, or both, I can’t say, but it has become such an accepted practice that few of us even think about it.

So, what’s unfair about it? Well, people who rent their homes don’t get to claim a similar deduction and neither do those precious few who pay cash. It’s used as a stimulus to encourage people to borrow money to buy a house rather than pay rent on one.

The principles of fairness in taxation are simple. First, people in similar circumstances should be taxed similarly, as should companies engaged in similar enterprises, as should business transactions of a similar nature. Second, profits are taxable where they are earned because that’s where governmental services like public safety and infrastructure are provided.

An example of the last point is the sale of Montana property by an out of state resident. Because the seller received the payment in, say, Oregon, they can avoid paying capital gains tax by simply not filing a Montana income tax form. A Montana taxpayer can’t get away with that, so why should anyone else?

Maybe there are two businesses in a city that sell building supplies; Joe’s is a family business and has five employees and Local Lumber Incorporated has fifty. The county has a business incentive program that allows lower property taxes for a new or expanding business as long as ten new jobs are created. Local Lumber can afford to finance the expansion, but Joe can’t; same business, different treatment.

Or perhaps there is a government tax break for growing watermelons because the watermelon growers can’t make a profit on watermelons due to foreign competition. This encourages farms in the watermelon belt to plow the grass under and put in melons and reap the subsidy, but one farm can’t grow melons because of soil conditions and is out of luck. (Of course, in a “free” market system the watermelon farmers would have to learn to grow something else.)

The list goes on, and you probably got the picture long ago. It ain’t fair, but there you are. The minute a “fair” tax law is created there will be people beating down the door to the Statehouse asking for an exemption. Legislators need to remember that one person’s exemption is another person’s tax increase, and so do we.

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