Sales Tax Has Little Support Despite Montana's Budget Woes
Late last year Montana lawmakers carved about $170 million from state spending. That led to big cuts – for example, the state health department lost 4.5 percent of its budget, which slashed critical services for some of Montana’s most vulnerable.
Would a new revenue source, such as a sales tax, help prevent future budget crises?
“I’m actually for a sales tax if it’s greatly limited,” Montana state Senate President Scott Sales told the "Voices of Montana" radio program this spring.
Sales, a Republican, doesn’t support the so-called "three-legged stool" model of taxation that relies on a combination of sales, income and property taxes.
He tells Montana Public Radio the only proposal that he would theoretically support would be to fully replace Montana’s income tax with a sales tax of around 4 percent.
“But a percentage of that – I don’t know if it’s 10 or 15 percent of that income, maybe even more – would come from outside sources from outside the state as people come to visit Montana.”
Democratic state Senator Dick Barrett says a sales tax is the last thing Montana needs.
“No, that’d make it much worse,” he says.
Barrett is former University of Montana economics professor.
“I wouldn’t support a general statewide sales tax, simply on the basis that it is, well, very regressive.”
Regressive, meaning, “Lower income people pay a higher percentage of their income in taxes with a sales tax than higher income people,” Barrett says.
To replace Montana’s income tax, Barrett calculates a 4 percent sales tax would have to be levied on almost everything, even necessities like food.
Pat Barkey, a senior economist at UM, estimates Montana’s annual retail sales total roughly $20 billion.
“So if you had a 4 percent sales tax on everything – which we would not have, but if you did – that would be about $800 million of revenue. Eight-hundred-million dollars is about 80 percent, maybe a little less than 80 percent, maybe 75 percent of what the personal income tax remits; the actual money coming into the Montana treasury,” says Barkey.
He says Montana leaves a lot of money on the table by not taxing Montana’s tourists.
"Any tax, once instituted, can go anywhere," Barkey says. "It’s a supplemental tax that’s only on tourist stuff, but once that gets into the door there’s no question that it gets much easier to tinker with a tax than it is to institute it the first time."
Montanans have made themselves clear about the sales tax. They’re just not that into it.
“It’s been kind of the third rail of politics in this state," Senate President Scott Sales says.
He’s right about that.
Voters twice rejected statewide sales tax proposals in 1971 and 1993, and by overwhelming margins.
The sales tax sort-of became an issue during 2016’s gubernatorial race. Republican Greg Gianforte opposed the sales tax during the campaign, but an audio tape surfaced suggesting he had a different position in 2002. At that time, he said replacing Montana’s income and capital gains taxes with a sales tax would be a big draw for the high tech sector.
Democrats pounced on that and produced their own video response featuring Gianforte’s Democratic opponent Governor Steve Bullock and U.S. Senator Jon Tester at a taco joint drive-through.
The schtick? They barely have enough money between them pay to for their meal.
Tester: So, governor,what if there was a 4 percent sales tax?
Bullock: If there was a 4 percent sales tax, that’d be another 65 cents.
Tester: We wouldn’t have been able to pay for our breakfast.
Bullock: Not only would we not have been able to have breakfast today, think about Montanans all across the state. Next thing you know, 4 percent on their tacos … four percent on everything.
University of Montana economist Pat Barkey predicts it’s only a matter of time before the sales tax debate, like a zombie, rises from the crypt. One reason; Medicaid spending.
“It’s not the Medicaid expansion I’m talking about, it’s the fact that Medicaid has a substantial Montana component in terms of what Montana taxpayers contribute to that program. Like every other health care program, it faces upward pressure on costs. That’s something that needs to be fed by state dollars and it squeezes other things we like to spend money on," Barkey says.
Things like roads, bridges and hospitals.
Barkey predicts Montana’s underfunded worker pensions will eventually force policy makers to, at least, reconsider a sales tax.
"Under our current rules we’re going to see more and more of the spending obligations of state and local governments consumed by that,” he says.
Montana politicians won’t stump for a sales tax anytime soon. It’s a non-starter for Democrats like state Senator Dick Barrett.
“No. I actually don’t think there’s much appetite for a general sales tax from any side," Barrett says.
Republican state Senate President Scott Sales agrees.
“It’d probably be a very entertaining debate on the floor of the Senate or the House, or both," Sales says. "But with a governor who has entertained the idea of passing a constitutional amendment to outlaw a sales tax, why would you ever even waste the Legislature’s time?”