Truths About Taxes

I haven’t met a single Montanan who feels comfortable with our state’s current tax system. Just about everyone wants tax relief and is looking for answers. And unfortunately, there are no silver bullets to reform. I’ve tried to keep the following truths in mind as I’ve considered my own views about tax reform in Montana.

Between federal Tax Day and the supplemental property tax bills sent out in 49 of 56 counties, most Montanans are still feeling the pain of taxes from April. On top of that, many voters were asked to yet again increase their property taxes in this month’s school and special district elections.

I haven’t met a single Montanan who feels comfortable with our state’s current tax system. Just about everyone wants tax relief and is looking for answers. And unfortunately, there are no silver bullets to reform.

I’ve tried to keep the following truths in mind as I’ve considered my own views about tax reform in Montana:

1. The root cause of taxation is government spending.

There are no free lunches in government. All government spending must eventually be paid for by the taxpayer, whether in the form of higher taxes, “non-tax” special assessments and fees, or some other more creative burden. Even one-time-only federal money isn’t “free”, and it often gets spent on ongoing general budget obligations that require increased taxes eventually, as we see from many Montana school districts who now ask voters to raise property taxes to sustain investments made with one-time-only pandemic cash.

2. Property taxation is driven by local governments and schools.

The much debated statewide 95 mills for education only accounts for a small portion of our property tax bill, while local governments and schools drive the lion’s share. For example, the local schools and county take 75% of the taxes for my home in East Helena while only 7% goes to the state. The rest goes to special districts. And even that 7% taken by the state goes right back to fund local school budgets. Property taxes in Montana are primarily driven by local decisions.

3. Under a property tax regime, you never really own your property.

It’s important to reflect on the ethics of property taxation when thinking about tax reform. Montanans place a high value on home ownership and property rights. Yet, the current property tax system guarantees Montanans will never own their home but rather will pay rent to the government forever. That might sound surprising, but consider: even if someone pays off the mortgage for their home, they will forever owe property taxes to numerous taxing jurisdictions each year. And if a homeowner falls behind on taxes the government can swoop in and take their home. In this way, property taxation denies Montanans the opportunity to truly own their property.

4. A sales tax is not yet a viable replacement for property taxes

In addition to being a political non-starter, modeling has consistently shown a sales tax capped at 4% per Montana’s Constitution would not generate sufficient revenue to completely replace property taxes – at least in the current economy. A recent presentation from Missoula County pitching a local option sales tax demonstrates that a 4% sales tax with 90% of revenues dedicated to property tax relief would only offset county property taxes by about 42% while then adding taxes to groceries, meals at restaurants, and drinks at the local bar. Not quite a cure-all for tax woes.

5. Local tax levy votes are among the least representative elections.

One of the core creeds of American democracy is “no taxation without representation”. Yet, the decision to approve property tax hikes is usually made by a tiny fraction of residents in a community, oftentimes less than 25% of eligible voters. Scholars find that off-cycle elections are among the least representative and most likely to be dominated by organized interest groups.