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Tax Burdens and Cheaters in the Rockies
Except for his loquacious southern accent, one could have mistaken his words as those of a Rocky Mountain westerner. "Don’t tax him, don’t tax me, tax the fellow behind that tree." That piece of political realism came from a wiley old senator from Louisiana, Russell Long, who was stating the almost universal desire that someone else, but not us, pay the taxes necessary to fund our public services.
Given the good deal we westerners receive on each dollar of our federal taxes, our objection to those taxes is ironic. Here in Montana we currently receive $1.46 for each dollar we send to Washington, D.C., and much the same is true throughout the region.
Westerners, like other Americans, insist on no less than the basic government services. We expect, as we should, clean water and clean air; we demand safe streets, firefighting, good schools, national parks, local playgrounds, assured retirement, medical care for the elderly. None of these nor our many other expectations come free. But let’s face it, we do expect the "fellow behind that tree" to cough up the money for our bargains.
For more than two decades our elected leaders have acknowledged our tax allergy, and both federal and state governments engage in tax cut orgies. Governors and legislators along with presidents and Congress have cut taxes at a cost to the public treasuries of many trillions of dollars. Elimination of estate taxes, significant reductions in the top rates, unrelenting widening of corporate tax loopholes, tax rebates, and as a pacifier, relatively minor rate reductions for middle-income taxpayers, have combined to reduce our public treasuries, caused an unprecedented and dangerous federal deficit, and dumped enormous burdens on local governments, resulting in unsustainable increases in inequitable property taxes.
In the Rocky Mountain West we have an unfortunate but consistent history of both Democratic and Republican administrations breaking two of taxation’s golden rules: first, to fund public needs, collect low tax rates from the widest possible base of taxpayers necessary; second, never cut taxes in response to a sudden, and usually fleeting, treasury surplus. Despite the reductions and rebates, we westerners still grumble incessantly about taxes even though we are among the lowest taxed people in the nation. Half of our eight Rocky Mountain states rank in the bottom one-third in federal, state and local tax burdens. Three of our states–Montana, New Mexico and Alaska–rank 37th, 49th and 50th among all the states in individual tax burden.
Interestingly, here in Montana, Governor Brian Schweitzer has directed our Montana Department of Revenue, to find "the fellow behind that tree." They are looking for persons and corporations, often out-of-staters, who owe taxes in Montana but don’t pay up. It’s not a bad idea–rounding up the runaway scofflaws.
Thus far the Department has identified more than a dozen tax-dodges that should be stopped. Three finds are particularly tasty. The first involves abusive tax shelters that, although illegal under federal law, have been permitted here in Montana. Those shelters involve, among other scams, off-shore trusts to avoid Montana taxes.
The second tax avoidance scheme by non-Montanans is the failure to report income from selling property they own in Montana. The Department of Revenue’s search has uncovered an astonishing 70 percent of non-residents who fail to pay taxes on the profitable sale of their property in Montana.
The third and perhaps most delicious uncovered scheme involves the non-payment of taxes on oil and gas royalties by non-Montanans. It is estimated that 80 percent of out-of-staters who earn royalties from their oil and gas wells in Montana don’t even file state tax returns.
Although the state is still calculating the tax losses to Montana’s treasury from these three scams, a safe estimate is $12 million dollars. As a comparison, that is more than four times what Montana’s treasury receives from the state tax on beer. It is a full thirty percent more than the state receives from the lottery.
We Montanans pay our taxes. That is, wage-earners in this state–people who have money withheld from their paychecks–file their tax returns at a rate of 97 percent.
So it seems "the fellow behind that tree" is not paying his fair share after all. Go get him.
PAT WILLIAMS served nine terms as a U.S. Representative from Montana. After his retirement, he returned to Montana and is teaching at The University of Montana where he also serves as a Senior Fellow at the Center for the Rocky Mountain West.