Montana Viewpoint
May 14, 2007

“… If you are giving money away I will take it. If you want to give me inducements for something I am going to do anyway, I will take it. But good business people do not do things because of inducements; they do it because they can see that they are going to be able to earn the cost of capital out of their own intelligence and organization of resources.”
Paul O’Neill, Treasury Secretary in the George W. Bush administration, and former Alcoa CEO.

In the febrile attempt to lure “the energy bidness” to Montana, we are once again about to give away the store. Elected officials believe that the way to get a company to do business in your state is to make it economically attractive, and so they do this by giving special tax breaks to certain businesses. Businessmen know this is not true, but they are not usually dumb people, and will not discourage government from doing it.

This was proved out in the 2005 Legislature’s tax cut for wind power facilities. After the Judith Gap wind power farm had begun construction and after another wind farm near Glasgow had already been financed, the good folks of the Judith Basin project had a bill introduced to cut their tax rate in half. Even though they had made all of their business decisions based on the then current tax rate, they had the gall to ask for a 50% tax cut, and the legislature had the gullibility to give it to them.

Comes now the Montana Alberta Tie Line, which is a proposed power line between Lethbridge, Alberta and Great Falls. The line will carry Montana wind generated electricity to Alberta, and vice versa, which makes me wonder just how much better Montana wind is than Alberta wind. Maybe it has more body. The Canadian company building the line has planned all its financing on a tax rate half of the present tax rate, and would like the Montana Legislature to make good on that plan, thank you very much.

Business decisions that rely on the little bit of marginal savings that a tax cut would give them are nothing more than a gamble; but it’s a bet the Legislature is more than willing to cover—and lose. In 1989 when a canola oil plant was considering moving to Butte the Butte economic development folks moved to get property taxes on canola oil equipment reduced.

Butte Democrats joined Republicans in the stampede to a hasty decision and cut the taxes as asked. The canola folks, being good businessmen, decided that even with the tax cut Butte really wasn’t the right place and settled elsewhere. That left the state of Montana with a 20 million annual tax loss due to the cuts, and nothing to show for it.

This is the folly we are facing once again. You’d think a legislature that has been suckered more than once would catch on that they are being had, but hope springs eternal, as they say. Unfortunately, it’s exactly this kind of behavior that has caused Montana homeowners’ property taxes to increase in the past.

Even though the proposed lower tax rates would not affect current revenues, it is the very fact that they are so much lower than other property tax rates that it invites cutting those existing rates, and that would cost us big time.

And here’s my second favorite quote on the subject, this one by billionaire businessman Michael Bloomberg, the Mayor of New York City:

“Any company that makes a decision…based on the tax rate is a company that won’t be around very long…If you’re down to that incremental margin you don’t have a business.”

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