Sales taxes would create long-term economic problems

By Shelby DeMars , Montana Business Leadership Council Executive Director

With just over half of the legislative session completed, there have been over $280 million in tax hikes proposed thus far. Most of that revenue would come from sales taxes on products Montanans use every day.  For instance, there is one proposal from Democratic legislators to impose a general sales tax on all Internet transactions, like the products you buy from Amazon or Ebay.

The thing is, over the long term the state doesn’t need to impose those sales taxes.  It’s true that state government faces a budget hole for the next two years, but most experts acknowledge the budget gap we’re in is temporary.

When economic activity returns to normal—and there is some evidence that it already is—state tax revenues will stabilize and we’ll be able fund government to do everything that we’re doing today.

Though we’re facing a temporary budget hole, none of the sales taxes being proposed are temporary.  Every proposal that’s been floated so far has been for permanent sales tax hikes.

That’s probably by design, and we’ve seen this happen before.  Any time the legislature faces a budget gap, the backers of big government come out of the woodwork to propose new and permanent tax increases.  They know that if they can succeed in imposing a permanent tax increase to address a temporary problem, then in subsequent years they can use the revenue windfall to expand the scope of government.

This is exactly what we’re seeing today with all these sales tax proposals.  It’s an end-around play to impose permanent tax increases on all Montanans.

Unfortunately, this time around the legislature is dealing with the most insidious of all taxes: sales taxes.  Sales taxes are regressive, meaning that lower-income Montanans end up paying a disproportionate share.  Sales taxes hit those on fixed incomes, younger Montanans, and working families especially hard. They also act as an anchor on our economy—slowing economic growth by taking money out of the pockets of everyday Montanans and creating government bloat.

So by imposing new, permanent sales taxes to address a very temporary problem, we’d be saddling ourselves with long-term negative impacts on individuals and on our economy at large.  This is not good policy.

You can do something about it.  Contact your legislators and let them know you don’t support new sales taxes.

Instead, let’s address this temporary problem with a temporary solution.  Let’s tighten our belts for the short term until the economy gets back on track.  Unlike new sales taxes, budget cuts are always temporary.  It’s far easier for the legislature to come back in two years and restore temporary funding cuts than it is for the legislature to repeal tax hikes.

Imposing new sales taxes would slow economic recovery and have a disproportionate impact on those who can least afford to pay them.  In Montana, we’re fortunate not to have to pay sales taxes—let’s keep it that way.

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Shelby DeMars is the executive director of the Montana Business Leadership Council