| I can understand why businesses want to pay less taxes. I do. After all, most business decisions - especially with the bigger companies - are aimed solely at the bottom line. There's no room for sentiment, such as education, health, or safety. That stuff has to be regulated by the government. Business doesn't give a rat's *ss about those things, even though its very existence depends on it.
Still, it's amusing watching local business advocates twist themselves into knots explaining why Montana business taxes are too high.
Take this article by the Big Sky Business Journal called, "Shadow Economy Keeps Business Off the Books," in which it's revealed that Montana businesses stiff Montana taxpayers at twice the rate of other states:
A recent article reported that " the Montana Department of Revenue in 2005 conducted a tax gap analysis for both individual income and corporate license taxes ? According to the DOR estimates, Montana's fiscal 2005 tax gap was $145 million to $195 million for individual income and $33 million to $45 million for corporate license taxes. The overall noncompliance rate was estimated at 18 percent to 22 percent for individual income and 26 percent to 33 percent for corporate license tax. That was much higher than the other states found and was a source of concern."
While the concern here was about the loss of tax revenues to state government, the underlying assumption is that easily a fourth of the state's economy could be "off the books." The state's gross domestic product - the amount of new products and services generated -- might easily be a billion dollars more than officially calculated.
The report implies that this "underground economy" is generally composed of babysitters and independent contractors, individual folks working and paying under the table, ignoring the fact that the majority of unpaid Montana taxes are from corporations, not your next-door neighbor.
What's equally amusing is the Business Journal's claimed reason for our growing underground economy:
According to many economists, it is the existence of underground economies that props up many third world countries. Those same economists theorize that underground economies grow in direct proportion to the size and oppressiveness of government. Without the functioning of underground economies the standards of living in these countries would be considerably worse than it often is. Even in the US, much of the underground economic activity stems from newcomers attempting to enter markets for which regulatory barriers are otherwise difficult, if not impossible, to overcome.
Forgetting for a moment that we don't actually live in an authoritarian regime (yet) and that we live in one of the most business-friendly countries on the planet (Cayman Islands aside), with the quick pace of deregulation under the Bush administration, you'd expect these underground economies to be shrinking, according to this theory. They're not.
The more likely explanation for the growing underground economy is two-fold: the increase of corporate cheats abetted by the recent administration's pro-corporate tax policies, and the increasing difficulty of starting up small businesses thanks to health insurance costs, lack of regulation ensuring fair competition, etc. (Think the deregulation of radio, for example.) More folks are taking odd jobs.
The Big Sky Business Journal's implicit solution - to lower taxes - obviously isn't the answer. As is readily apparent, those industries slipping through tax loopholes won't stop using the exits if tax rates go down. There's no incentive to pay their fair share, and every incentive to keep circumnavigating the system.
Personally I think we need to simplify the system, give real breaks to small businesses (universal health care!), and increase punitive efforts, especially against big businesses.