Credit surplus? (Tax breaks galore)

By Bob Decker
January 22, 2009

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way. In short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”

Charles Dickens, A Tale of Two Cities

(Pardon me for overkill on the catch-quote, but it’s a timeless opening paragraph of a book, right up there with Bulwer-Lytton’s “It was a dark and stormy night …”, but we’ll save that other one for later in the session, if needed.)

At a recent conference on the subject of energy, Richard Opper, Director of the Montana Department of Environmental Quality, observed that the United States once was a nation that built infrastructure, but was now a nation that sought tax cuts. Remaining alert to noisy assertions that the current times are unlike any other, I think Opper had a point. You can see it by the number of bills in the Legislature that seek to create or increase tax abatements, credits, exemptions, and deductions.

On the morning of January 19, before the opening gavel of the House Tax Committee, I spent an hour at one of the public computer stations in the Capitol to count the tax break bills. Turns out, there wasn't enough time to finish the job: in that hour, I jotted down more than 50 tax-cut bills, either already introduced or in draft stage, but didn't come close to listing all of them.

Tax credits and cuts for cell phone companies, college savings, movie production, long-term care, license plates, energy conservation, electric vehicles, volunteer firemen and EMTs, downtown residential development, developmentally disabled, hearing aids, payroll tax for tribal employees, neighborhood cleanup, preservation of historical buildings, and so forth.

The subject on Monday for the House Tax Committee was proposed tax breaks for military veterans. Most of the attention was given to HB 28, sponsored by Rep. Pat Ingraham (R-Thompson Falls), which would exempt from Montana taxation the retirement income received by retired military personnel who live in the state. According to testimony, Montana currently has about 8,300 military retirees, and the average pension received by them is around $30,000 per year. The cost to the state in lost tax revenue, if the bill were passed, is estimated at $6.5 million annually.

Many legislators and witnesses at the hearing spoke appreciatively of the service and sacrifice given by military veterans. However, most of the bill proponents, nearly all of them veterans, and many affiliated with organizations such as the VFW and American Legion, justified the bill as economic stimulus and a means of attracting veterans from elsewhere to settle in Montana by virtue of a tax break offered by the state. Proponents used booster phrases like “Win-Win-Win” and “Everybody Wins” to describe the positive economic impacts of bringing veterans to the state.

Touting the alleged economic benefits of a proposed tax break is a common tactic of the tax break seekers, all of whom are aware of the tight budget situation faced by legislators. But, faced with myriad proposals, most promoted in a good-for-the-economy context, how will legislators decide?

The usual factors of lobbying power, constituency strength, and partisan philosophy will enter in, of course, but one must hope that legislators also make tax-change decisions on the basis of need. Among movie producers, volunteer fireman, military retirees, the working poor, and the low-income elderly, who most needs shelter from the economic storm?

The Policy Institute isn’t above the fray. We’re queued up to request changes in tax policy, too, but our breaks, such as an earned income tax credit, will be focused on improving conditions for low-income Montanans.

There’s another question that should be raised about tax-break proposals: How will it be paid for? The Policy Institute will also be proposing ways to raise money to cover the revenue lost from our initiatives, such as ending the oil and gas tax holiday and increasing tax rates on Montana’s ultra-wealthy.

In 1999, the Montana Legislature cut taxes on the oil and gas industry that resulted in more than $500 million in lost revenue to the state from 2003-2007. In 2003, the Legislature passed an income tax relief bill (SB 407) that gave the 1,500 wealthiest households in Montana (those earning $500,000 or more annually) an average annual tax reduction of $30,499, which was greater than the average annual pay of Montana jobs ($29,150) at the time.

Sometimes, tax breaks are warranted. And sometimes, tax-break mistakes should be corrected.