Meanwhile, over in North Dakota... property tax wars

This caught our eye in the Bismarck Tribune recently: Measure 2, if passed, would eliminate all property taxes in North Dakota. It is an idea that has political legs primarily because of state coffers that are bursting from oil-related revenue. Unlike Montana, North Dakota has aggressively worked to develop oil exploration, and that makes everything that much easier.

The tack that supporters of the measure have taken is brilliantly simple. They maintain that as long as there are property taxes, it isn't really every possible to own property -- one only gets to keep it as long as one is able to "pay rent" to the government in the form of property taxes, making any government that taxes property the real owner of said property.

Sarpy Sam wrote something a few months ago to the same effect, and it really got me thinking when I read it. Most people don't notice property taxes on their homes because most are still paying a mortgage (often refinancing over and over again, extending the life of the loan,) with the taxes wrapped into their monthly payments.

For those who manage to pay off their homes or other property, however, the cold reality is that if one is unable to pay the taxes, the property will be confiscated faster than you can say "Department of Revenue." The burden is particularly heavy on those who bought a house a long time ago and paid it off, but who now find that the value of their property has gone up sharply, and with it the taxes. Since many of the homeowners who fit this profile are retirees on fixed incomes, they can be forced to sell their homes because they can't afford the taxes.

The idea is a seductive one -- what would it be like to have property that one actually owned? In other words, what if you could actually pay it off and owe nothing else on it? What if no one could take it away from you once you had burned the mortgage? An amazing thought, really!

The drawbacks are significant, though. This particular law wouldn't allow even local entities to levy property taxes, meaning that local governments would have to be funded by the state government. The net effect would be a loss of local autonomy, essentially turning city and county governments into administrative districts of the state government, rather than uniquely responsive local government entities.

The temptation to raise income taxes to make up the difference would be very high -- one of North Dakota's strong points when it comes to taxation has been that North Dakota has a very balanced schema: modest income, sales, and property taxes, none of which carries a disproportionate load. A related point is that property taxes, unlike income taxes, are very stable taxes that provide a steady flow of income not subject to the vicissitudes of economic cycles. Even sales taxes, while far more stable than income taxes, are somewhat cyclical. Cyclical taxes such as income taxes tempt governments into greatly increasing government spending during booms -- spending that a government then must struggle to pay for during inevitable economic downturns.

All in all, from an MH perspective, while all taxes are evil (even when necessary,) property taxes are less evil than are income taxes, since they do not directly punish productivity (although they do punish investment and saving.) We would favor very low property tax rates, with creative ways of addressing some of the worst aspects: perhaps having lower rates for those over the age of 65 with fixed incomes, or maybe even having property tax rates drop significantly once a mortgage is paid off, which would have the effect of encouraging families to reduce their debt burdens.

These creative proposals are things that can't be explored anywhere but in the legislative process. Bills to eliminate property taxes failed to pass the North Dakota legislature during the last session, a fact that should sound a warning bell for any "small-r" republican. In general, law made by referendum and ballot initiative tends to be poorly written law -- there is no formal debate and testimony, there can be no amendments to deal with problems that a bill's authors hadn't thought of, etc. While legislative wheels grind slowly, they tend to grind fine and to produce results that, because they usually involve compromise, reflect as close to a consensus view as can be reasonably hoped for.

We will watch with interest to see how North Dakotans vote on this matter, hoping that whatever they decide will be good for their state. Let us also hope that the Montana legislature looks across the border for inspiration and finds ways to lower our own taxes... of every kind. Of course, before that can happen, Montana will need elected officials at every level who creatively encourage a robust development of our oil and coal resources -- until that happens, any tax relief that we can hope for will be symbolic rather than substantial.

The Billings Gazette: Cubin, wolves, and income taxes

Montana Headlines was about to return to its roots by criticizing the Billings Gazette for an unfair slant. In the on-line edition as it originally appeared, this article was advertised on the home page with the rather unpleasant picture of Rep. Barbara Cubin (R-WY) and the subtitle of "Howl now or forever hold your peace."

The impression was that these were Rep. Cubin's words, when they were actually the Gazette writer's words. Given that Rep. Cubin already is laboring to counter an image of using impolitic language from time to time, it seemed like unfair piling on. Apparently, someone else thought the same thing, since that caption soon disappeared -- even though the unpleasant picture remains.

And now, there is the task of agreeing with a Gazette editorial from this morning. It opens with a thought that has to have been niggling in the backs of many Republican heads here in Montana:

Montanans who just finished filing income tax returns wonder about their Legislature's obsession with "property tax relief."

Well-stated. Not having access to the inner circles of Republican strategy in the state, we would imagine that having just reformed the income tax bracket system to remove the negative perception (although not the reality) of being a high income tax state, Republicans would not feel they could return to income taxes this soon.

Yet it seems that the Gazette editorial is hinting that income tax cuts (along with a healthy rainy day fund) are exactly what should be pursued, rather than property tax cuts. If so, then we doubly agree with the Gazette editorial writer.

We certainly support just about any tax cuts, and since property tax cuts are the chosen focus of this legislative session, we do support them. We think that they should be real and across-the-board (with possible exceptions for large out-of-state corporations, luxury vacation homes, etc.)

It is hard, however, to look at the overall tax breakdown illustrated in the Gazette editorial and wonder why, in the face of a surplus, Republicans and Democrats alike aren't working toward further income tax cuts rather than property tax cuts. This is especially true since income taxes are the most volatile taxes in the arsenal of a revenue department. Property taxes, by contrast, are a consistent source of income year in and year out.

A reason to favor property tax cuts is that Democrats are perhaps more open to them than they would be to income tax cuts, given the greater demagogic payoff of income tax issues for Democrats. But these cuts or credits are boiling down to something that doesn't represent a meaningful tax-relief policy: one-time $400 checks being mailed out to every Montana home-dweller in a re-election cycle, and no permanent tax relief at all for 20% of Montanans.

Furthermore, we are facing the amazing fact that the legislature is at this point in divvying up a $1 billion surplus -- and there has still been no rainy-day fund money being set aside. This is particularly amazing in a state almost completely dependent on the highly volatile cycles of income tax revenue. One would think that the first thing GOP and Democrat leaders would have sat down and agreed upon would have been the amount to set aside for future revenue shortfalls.

Montana Headlines would speculate that Republicans might have been better off doubling or tripling the governor's proposed rainy day fund, and axing all property tax relief (including the governor's) once it became clear that Democrats were not going to allow real, permanent, across-the-board cuts in property tax rates.

Yet, given a choice between a last-ditch stand on the hill of getting some sort of property tax relief and letting the legislature just fritter the entire surplus away on spending (which is what they seem to be bent on doing) -- setting expectations for further massive spending in the future -- yes, Montana Headlines is going to continue to stand with the Republican leadership for tax cuts of almost any kind.

So, property tax cuts it is. Let's roll.

Pay more taxes -- please!

Well, today is the day: the deadline to file those IRS returns and mail in those checks to the government.

Of course, most Americans "get money back," which just means that withholding has masked how much is coming out of their paychecks. And it means that the IRS and DOR have tricked them into feeling as though the government is somehow giving them money, when what really happened is that they gave the government a no-interest loan.

As most conservatives point out, if every American had to write checks to the state and the federal government every pay period rather than having it painlessly withheld... well, we would very quickly have something that would make that old California Proposition 13 look like a "let's raise taxes" party.

But the only thing more annoying than paying those exorbitant taxes is listening to voices on the left talk about how much they enjoy and are proud of paying taxes, and how they would gladly pay more.

Well guess what? Anyone who wants to is free to put their money where their mouth is, and actually do it. And you don't have to live in a state with a "tax me more" fund. (Incidentally, neither John Kerry nor Barney Frank took advantage of this program in Massachusetts to pay under the older, higher rate when the income tax rates dropped there. And we won't even talk about way that wealthy liberal families use intricate trusts to avoid the death taxes they advocate retaining and raising.)

In fact, Howie Carr has been waiting for four years to find a Massachusetts politician who actually does voluntarily pay at the higher rate.

But as we were in the process of saying, you don't need to pass any special legislation to be able to pay more taxes and make sure that the government (state or federal) has more of your tax dollars to spend. You don't even need special accounting skills.

Just don't claim any exemptions or deductions. Talk about filing a 1040SuperEZ! No complicated rules, no tax-preparer bills, no need to keep track of charitable contributions or mortgage interest. We're talking Real Simple -- on steroids.

You can buy that "clean and green" hybrid and by not claiming the tax credit, you can feel really, really righteously good about it -- rather than feeling a little tainted by having to share the spotlight with the taxpayers who helped you pay for it.

Another technique is that you could report income you didn't receive. Granted, that might buy you an audit, but it would be an audit that you would pass with flying colors (much to the bewildered confusion of the IRS or DOR auditor.) Again, you'll feel really good, and they'll feel a little guilty since they all take advantage of every loophole they can find on their own returns. You change the world one mind at a time, you know.

Or, if you're married, calculate your taxes both by married and single filling separate methods -- use whichever one costs you more. You shouldn't get audited on that one.

If you think you feel good about paying taxes now, just think how great you'll feel when your tax bill is higher. You might get to experience the happiness of a smaller refund check or even (joy above joys!) -- see what it feels like to write a check on April 15 rather than get one back. Or if you already write a check on April 15th, what it feels like to write an even bigger one.

It's all for a good cause, so let's all go out there and have a good time! Think global, act local...

Economic patriotism for Montana -- part II

Ed Kemmick put simultaneous responses on Mark Tokarski's website as well as on Montana Headlines, pointing out that our two sites had addressed the same Billings Gazette article on Gov. Schweitzer's and Corey Stapleton's comments about our tax and business climate.

Kemmick correctly pointed out that our views of these remarks were "180 degrees" apart, and expressed an interest in hearing our comments on the other's posts.

One can read Tokarski's post by clicking on the above link, and the Montana Headlines post with Tokarski's response in the comments section is just below, or here.

We were not capable of being as concise as was Tokarski, so are replying as a separate post here.

First, Mr. Tokarski mixes up two things that are intertwined but separate: indicators of economic prosperity (such as incomes and unemployment rates) and state government revenues.

What is at issue in this current legislative session is state government revenues, so that is what should be concentrated on.

There is no question, for instance, that energy prices and demand account for some of our current high tax revenues. But this is a separate issue from our economy. Are we to assume that a booming energy production industry is the reason that unemployment rates are low in Whitefish as well as in Sidney? Or that incomes have risen in places west of the Bighorn River?

Second, Tokarski, using a common Democratic argument, implies that the only reasons for Montana’s cyclical revenue collections are things like energy or commodity prices. It is true that commodity prices have a cyclical impact on our economy, but it cannot be avoided that what grossly magnifies the effects of these economic cycles on Montana’s tax revenues is our dependence on an income tax – something over which we do have control.

States without income taxes do not go through the kinds of cyclical crises that Montana does. The bottom line is that incomes (and hence income tax revenues) vary with broader economic cycles, but citizens own property and spend money at far more constant rates.

There are good reasons to avoid a sales tax (for instance, Billings draws a lot of income out of Wyoming because Montana doesn't have one) -- but if we insist on avoiding one, we'd better stay used to wide fluctuations in tax revenues.

As has been stated on Montana Headlines before, more is accomplished (including scoring political points) when there aren’t arguments over who gets credit for what. The main point to our previous post was not to claim sole Republican credit for favorable economic conditions or high tax revenues. It was rather to question whether the governor was attempting to use appeals to “helpfulness” as a way to silence Republicans who believe that lowering tax burdens yet more will help the state’s economy even more.

And as has also been stated on Montana Headlines before, Republican policies at the very least did not hurt the economy or hurt tax revenues. Republicans certainly can’t prove that it was only their policies, and not factors like energy prices and demand, that were responsible for Montana’s current favorable economic and revenue situation. But then, we’ve never heard them claim that they were.

Neither, though, can Democrats prove that Republican policies did absolutely nothing to help our economy or revenues, but yet we certainly hear Democrats making that assertion.

There is one point on which we would agree – namely that a good use of excess tax revenue is to plan ahead for days when revenues will be lean.

Democrats could propose that ongoing state spending rise only with inflation, and that no new employees or programs would be added. They could furthermore propose saving most excess revenues for a rainy day. With such a combination, a future Montana on the cyclical economic downswing wouldn't have to struggle to fund them.

While Republicans wouldn't share their economic pessimism, we would still probably find consensus on that plan. As long as Democrats continue to propose massive increases in government spending, however, we will assume that they aren't as worried about a future bust as they say they are.