Tax Fairness for All (Straight People)

I’ve been involved with tax legislation for several years now, and I’ve never run into anyone – legislator, bureaucrat, business person, citizen – who’s said they want taxation to be unfair.

Nope, we all want our taxes to be fair. And although we can argue at the drop of a hat about what fairness actually means, there is one principle of fair taxation that everybody appears to agree on, and that’s that “similarly situated taxpayers should pay similar taxes.”

How somebody is “situated” here refers to their ability to pay taxes.  In the case of the income tax, ability to pay is mostly driven by income, but typically we take other things – number of dependents, mortgage and health care costs, age, disability, other taxes, work expenses and so forth – into account as well. And the fairness principle here is that if my wife and I look pretty much just like the neighbors in all these respects, we can and should pay pretty much the same taxes. And generally speaking, that’s what happens.

But now it turns out that in some instances, securing that kind of fairness apparently violates Montana’s constitution.

As Chuck Johnson reports, Department of Revenue Director Mike Kadas last week announced that Montana would not, could not, follow the lead of the Federal government and allow same sex couples, legally married in one of 14 states where that can happen, to file a married, joint return. The reason of course is that the Montana constitution says that same sex couples simply can’t be legally married here. And the legal staff in the Department of Revenue has concluded that if they can’t be married, they can’t file a married, joint return.

So let’s review. Two couples, one same sex and the other opposite sex, live next door to each other in a nice Montana town. Both were married in, say, Minnesota. They have the same income, the same mortgage payments and property taxes, the same number of kids, the same medical and business expenses, the same …well, you get the idea: the same everything relevant to their ability to pay taxes, including their marriage certificates. The opposite sex couple files a joint return, but the same sex couple can’t. They file separately and as a result between them pay more than their neighbors.*

Now to be clear: Director Kadas is a staunch proponent of tax fairness (to say nothing of basic human rights) and so far as I know is no happier than anyone else about being backed into this corner by the Montana constitution. And he did say that the Department of Revenue currently has no way of knowing whether any couple that files jointly really is legally married, and it’s not about to start trying to find that out.** That means, in effect, that same sex couples that decide to risk it (after all, they’re breaking the law!) can file jointly and probably won’t get caught. It sounds a lot like “don’t ask, don’t tell.” Fairness (sort of) by subterfuge.

Kadas suspects that some day he will be sued over this. And that’s almost certainly going to happen. The issue goes well beyond taxes.  Pretty soon we are going to realize that our constitution is forcing the state to discriminate against same sex married couples in hundreds of ways, and in the wake of the US Supreme Court’s Defense of Marriage Act ruling, and of so many states legalizing same sex marriage, it’s hard to see how such discrimination will not be struck down.

Of course, we could save ourselves a lot of legal grief and do the right thing by repealing Montana’s constitutional prohibition on same sex marriage. Wouldn't that make more sense? 

*Filing jointly doesn’t always lower a couple’s tax bill. In fact, it can raise it. The explanation for all this gets a little wonkish, but Dan Dobbs at the Department of Revenue, one of Montana’s best tax wonks, lays it all out in this 2009 report.

** There's a practical side to this policy. The Department of Revenue figures that verifying couples' marital status would cost more than any additional revenue they would receive as a result of making that effort.

Putting Coal Ahead of Our Future

As Prof. Robin Kundis Craig noted last week in a lecture at the UM Law School, the preamble to the 1972 Montana constitution is really pretty splendid:

We the people of Montana grateful to God for the quiet beauty of our state, the grandeur of our mountains, the vastness of our rolling plains, and desiring to improve the quality of life, equality of opportunity and to secure the blessings of liberty for this and future generations do ordain and establish this constitution.

Craig wasn't just praising the eloquence of constitution's authors (although they certainly were eloquent), she was making the point that environmental resources - rivers, forests, fisheries, the atmosphere - are held in trust for the public and that trust carries with it the authority and responsibility for their protection. That's a point that sometimes gets lost sight of. Take, for example, a recent letter to the Helena Independent Record by Sen. John Brenden.

Brenden, who is chairman of the Legislative Environmental Quality Council, thinks that Governor Bullock and Department of Environmental Quality Director Tracy Stone-Manning should oppose the recently announced EPA carbon emission standards for new power plants. The problem, he says, is that the standards will “prevent new plants from being built anywhere in the country,” and that, in turn, will “kill future demand for Montana coal.” One might hope that Sen. Brenden would know better, but alas, he is wrong on two critical counts.

First, it’s not clear where Sen. Brenden, if he ever read the Montana constitution, could have gotten the bizarre notion that it's the job of the Department of Environmental Quality to prop up the coal industry. Just to be sure: it’s not.  The department is charged with protecting and sustaining a clean and healthful environment for the benefit of this and future generations (check out the DEQ mission statement here). By now it should be clear that protecting Montana’s environment – and when it comes to that, its economy as well - requires arresting climate change, and it's equally clear that we can’t do that alone. We must join in the national effort to reduce carbon emissions, and not subvert that effort in the interest of selling other states more coal. In order to oppose these regulations, the  Governor or Director Stone-Manning would have to neglect their public trust duty to protect the environment that Montanans treasure.  And neglecting that duty is something they should never do, even if Brenden thinks otherwise.

Second. even if  Bullock or Stone-Manning could somehow make the EPA standards go away, no new coal fired power plants would get built, because nobody intends to build them anyway.  And the culprit - if there is one  - is not the EPA; it’s cheap natural gas. As Brad Plumer reported recently in the Washington Post, for new coal plants to be competitive with natural gas plants, natural gas prices have to get above $7 per million BTU. But the US Energy Information Administration projects that the price will stay under $6 for the next two decades; as a result, the agency does not see any new coal powered plants being built between 2018 and 2035. If coal faces a grim future, it’s the fault of the heedless free market we're all so fond of til it gores our ox, not Washington policy makers.