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Montana Viewpoint
IT’S A TAX MYSTERY
How can taxes increase when taxes are cut?

October 2, 2006

Democrats have long been tagged as the party that increases taxes. Maybe so, maybe not, but it’s a game two can play. In the twelve years between 1993 and 2005 that Republicans had control of Montana state government, they claimed to have cut property taxes significantly. During those same twelve years homeowners claimed that their property taxes were increasing. Something was not quite right, so what really happened?

First, a word from our philosopher: I’ve long had an un-provable theory that no matter how you run a country, it will cost just about the same. The services can be delivered by private enterprise or government, but it will all be paid for out of the same pocket—the citizens’.

If you don’t fund youth programs you spend more on prisons; or you can spend more on youth programs and education and less on prisons and social services, etc. Government-run programs versus private enterprise programs will have to provide essentially the same services at essentially the same cost—in short, it’s all a wash.

Why? Because there is a certain level of societal services below which the public will not go, no matter how they feel about taxes. They demand healthcare, education, transportation, and jails and cops. These four services make up about 80% of the cost of government.

Now think of squeezing the proverbial balloon; you can make it thinner in one place, but it will get thicker in another. It’s just the nature of things.

The same with taxes needed to fund services—if you lower taxes in one place, you still need the same amount of money to serve the public as they want, so there will be an increase in another place. That’s what we’re seeing and feeling with our homeowner taxes today.

You can measure the change in property taxes by looking at the cost per mill to the property tax payer from one year to the next. In 1993 the average cost per mill for was 34.7 cents per dollar of taxable valuation. Now, have a seat, you may want one, because in 2005 the average mill shot up to 52.1 cents on a dollar—50% higher. A great deal of this increase occurred in elementary and secondary education.

The reason is not because education is a beast with an unquenchable appetite. Education mills increased for two reasons. First, from1993 to 2005, the state’s share of the school money, which was determined by the legislature, got smaller; but schools were allowed to raise local property taxes to make up for it. The less the state contributes to school funding, the more the local taxpayer puts in, and vice versa.

Second, the legislature has cut taxes for certain types of businesses by a huge amount, and the local schools are allowed to increase local taxes to make up for that. Taxes on electrical power plants and dams have been cut by 50%, and taxes on business equipment have been cut by 66%.

I am not here to argue whether that’s good or bad. The point is that it took hundreds of millions of dollars a year out of county and school treasuries, disproportionately benefiting large, multi-state corporations; and disproportionately shifting those taxes to homeowners and main street businesses.

This is not a tax cut, this is a shell game, and it’s left up to the citizen to figure out which shell the pea is under, because the politicians responsible for it sure as heck won’t tell you. It does not benefit the regular Montana citizen in any way shape or form, and the message that it does is bogus.

Of course, not everyone saw a 50% increase in their mill levies, after all, that’s just an average. Some places actually saw their mills decline, but not many. If you’re curious to see how mill levies in your county behaved from 1993 to 2005, go to this page. The data was compiled from information provided by the Montana Taxpayers Association.

In this election year one party wants to blame the other as wanting to raise taxes. Let’s remember it’s a game two can play, and do.

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

jim@jimelliott.org