Republican gubernatorial candidate Greg Gianforte has unveiled his “406 tax relief” plan, and it’s so predictable it should be sold at Wal-Mart for a dollar a yard.
The “4” in the plan stands for the number of years over which he would phase out the business equipment tax, which despite numerous reductions in recent legislative sessions still brings in about $81 million a year. This shortfall would have to be made up by local governments and schools, so it isn’t clear that this provision would help anybody other than large-company bookkeepers who have to fill out the paperwork.
The “0” stands for the increase in state spending that Gianforte favors, other than to account for inflation and infrastructure improvements. That’s consistent with the standard conservative principle that nothing is wrong with government that can’t be fixed by not spending any more money on it.
The key number in Gianforte’s plan is “6,” which he thinks should be the highest state income tax rate, down from 6.9 percent. Other rates also would be reduced, he said.
In an op-ed, Gianforte wrote, “Using fear-mongering rhetoric typical of Washington politicians, my opponent claims tax relief will lead to lower revenues. But we cut Montana income taxes in the 1990’s and early 2000’s, and what happened?”
Perhaps you can guess his answer. Here’s one paragraph we will never read from a Republican candidate: “We cut Montana taxes, and what happened? Revenues fell off a cliff.”
No, he argues that revenues increased, and so they did. Thanks to inflation, population increases and economic growth, revenues nearly always increase. But as usual when political claims are put to the test, the truth is more complicated.
Let’s set aside the “fear-mongering rhetoric” slur, which implies that even considering the possibility that cutting taxes might lead to lower revenues is childish and cowardly. Let’s look at the numbers instead.
Data for the 1990s are murky, but the Center on Budget and Policy Priorities says that Montana was one of 43 states that cut taxes between 1994 and 2001. Many of those states tried to offset the revenue losses by raising fees. In Montana, for example, college tuition went up more than 10 percent, CBPP said.
According to the Chronicle of Higher Education, state support for Montana State University Bozeman and the University of Montana was cut just about in half from 1987 to 2012. MSU Billings got off a little easier, with a cut of only 35 percent.
Things have improved since then, but Montana colleges and universities still rank 48th among the states in total revenues per full-time student. If tax cuts made us richer, don’t try to tell that to a college student taking a full course load while holding down two part-time jobs.
In 2003, the Montana Legislature passed Senate Bill 407, which reduced the top tax rate to 6.9 percent from 11 percent, increased the number of taxpayers subject to the top rate and gave a tax credit on capital gains.
But other changes in SB 407 partially offset the cuts. About 24,000 Montana households actually paid higher taxes under SB 407, the Montana Department of Revenue estimated. And households with incomes of less than $75,000 got tiny tax cuts at most.
In sum, the DOR calculated in a 2006 report, SB 407 cost about $100 million in tax revenues in 2005. Nearly half the tax cuts went to families with incomes of more than $500,000. More than 75 percent went to families with incomes of more than $150,000.
To put that in perspective, DOR noted, the average tax cut of the 1,586 households with more than $500,000 in income was greater than the average annual pay of Montana jobs covered by workers’ compensation.
What’s worse, the DOR report found, the tax cuts cost nearly four times what the Legislature had estimated they would cost when it passed the law. The law did less to help poor Montana families than projected and much more to help the wealthiest Montanans.
According to Mike Dennison at MTN News, SB 407 saved Gianforte himself $3.4 million in state taxes over 10 years. He made 60 times as much as incumbent Gov. Steve Bullock, but paid taxes at a lower rate than Bullock did, Dennison reported.
Did tax cuts for rich people pay off in an improved economy? Not so’s you’d notice.
The Montana Budget and Policy Center, a Helena-based nonprofit, concluded that the 2005 tax cuts did nothing to improve the Montana economy, either in terms of income growth, unemployment, total jobs or gross state product.
In 2006, Paul Polzin, head of the Bureau of Business and Economic Research at the University of Montana, told the Lee Enterprises State Bureau that evidence on whether the tax cuts helped the economy was inconclusive.
Even as late as 2013, the Montana Department of Revenue’s chief economist, Dan Dodds, said the evidence remained doubtful. He noted that the 2005 tax changes did more to redistribute than to reduce the tax burden, and that tax cuts were offset in part by increasing taxes on cigarettes and other tobacco. SB 407 also instituted a rental car tax and increased lodging taxes.
Also, the Montana economy was growing at a healthy clip at the time, further reducing the impact. He concluded, “it is unlikely that SB 407 had a significant short-run stimulus effect.”
The question of whether tax cuts pay for themselves is critical at the national level, where a major party presidential candidate, Donald Trump, has proposed a tax plan that would blow a trillion-dollar-a-year hole in federal revenues, according to various expert analyses.
The numbers in Bernie Sanders’ plan don’t add up either, experts say. If you want a tax plan that makes sense, you have to hold your nose and look at Hillary Clinton’s.
Those numbers are widely disputed. At the state level, where spending is limited by balanced budget requirements, the link between taxes and the economy is clearer. A 2015 study by the Center on Budget and Policy Priorities concluded that states with the largest personal income tax cuts in recent years actually had slower job growth than other states. Of 15 academic studies since 2000, 11 found no significant benefits from cutting income taxes, the CBPP said.
Why? Because companies thinking of expanding or relocating look at far more than taxes. Sure, they want low taxes, but they also want good roads and streets, nice parks, fully staffed police and fire departments and an educated workforce. If they’re smart, they know those things don’t happen unless government is willing to pay for them.
If they aren’t smart, they engage in fear-mongering rhetoric.