SUMMARY: Do you suppose "selective" sales tax will remain "selective" longer than it remained revenue-neutral?
An interesting thing has happened to the governor's sales tax in the Legislature. What began as a "revenue-neutral tourist tax" has become a tax increase that will mostly hit Montanans.
The only surprising thing about the transformation of Senate Bill 407 is that lawmakers didn't even wait for the sales tax to be enacted before dispensing with the pretense of creating a new tax in order to reduce an existing tax.
Montanans have always tended to disbelieve sales-tax proponents who promise offsetting tax increases. Conventional wisdom is that any reduction in income or property taxes would be short-lived, and before long we'd wind up paying sales tax in addition to the other taxes we pay now. The skeptics seem to be right. Again.
SB 407 is badly mislabeled the "Montana Economic Development Tax Act." Its original premise was to impose a "selective sales tax" on things tourists buy, using the money raised to offset a cut in income-tax rates applied to capital gains. It's a sales tax on accommodations, rental cars and tobacco, and although it would reduce capital gains taxes, its net effect is to raise more money for state government. An aide to the governor tells us the governor won't accept this bill if it increases taxes; members of her own party in the Legislature say they're prepared to override her veto if they must.
But just as this bill has quickly morphed from a revenue-neutral tax measure to one that increases taxes, you know what will happen if this bill makes it into law. What begins as a "selective" sales tax will be broadened each successive session of the Legislature. Every time future lawmakers face a choice between fiscal discipline and applying the "selective" sales tax to more items, you know what they will do.
In years past, we've commented favorably on the merits of a well-designed sales tax as part of comprehensive tax reform that offers meaningful and permanent reductions in property and income taxes. The governor's original proposal didn't meet that standard, and neither does SB 407. It's not a better tax, just another one.