A Rejoinder To Natelson's "A Scholar In Politics"

Thomas Payne
Political Science, Emeritus
UM-Missoula

[Editor's Note: The following article appeared first in the Spring 1994 issue of Janus, the faculty publication at the University of Montana. It is reprinted here with permission.]

In an article in the Fall 1993 issue of Janus, entitled "A SchoLar in Politics: A Personal Account," Professor Robert G. Natelson sets forth his assumptions concerning the relationship between Montana's tax policy and the performance of its economy. He asserts that his findings and conclusions on this subject prompted him to organize and lead what proved to be a successful campaign in 1993 to secure sufficient signatures on petitions to place the fate of a 1993 legislative tax measure, House Bill 671, on the November 1994 ballot as a referendum measure, and to suspend its implementation until the voter's verdict in 1994. For a complete statement of Professor Natelson's position and description of the 1993 campaign, the reader is encouraged to read his Janus article.

Professor Natelson's assumptions concerning the tax policies of Montana and their consequences for the state's economy may be summarized briefly as follows:

1. Montana's economy is not growing as rapidly as are those of most American states, and most neighboring states in the West;

2. the shortfall in Montana's economic growth, especially since the mid-1970s, is due to the state's tax policy, which has generated excessive rates of taxation when compared to taxes in other states;

3. Montana's elected officials have, in general, been unresponsive to concern about tax policy or unaware of the consequences, and, on the contrary, exaggerated the extent of the state's fiscal crisis, preferring tax increases to reduction of state expenditures;

4. and finally, public officials have failed to pay more than lip service to the concept of "reinventing government," which offers the prospect of downsizing and streamlining an overgrown and wasteful state bureaucracy.

Professor Natelson maintains that by his efforts to defeat the sales tax and House Bill 671, he has performed an important public service and has satisfied the expectations of the UM Law School and University that faculty perform some public service. He observes that "...my family and I have paid a high price for the stand we have taken," and that he has been told by others "...that the volume of statewide political abuse I've received is virtually without precedent..."

Professor Natelson's successful efforts to block tax increases may demonstrate the political appeal of his position, but whether the "scholarly" case he offers in the Janus article as a rationale for his position on Montana tax policy is valid is open to question. While he is entitled to state his case, it is equally imperative that the flaws in his reasoning in support of his position be explored. What follows is both a critique of his position and an assessment of the consequences of following the path that he has proposed for Montana.

One difficulty with Natelson's scholarly approach is that he has provided little or no documentation of sources. He alludes to studies by economists and findings of other researchers but fails to identify his sources. Remembering that his article was written for a faculty publication at the University of Montana, one expects some documentation, but we are left to accept on faith his statements in support of a problematical thesis.

Professor Natelson applauds the "upbeat, entrepreneurial spirit" that he encountered in Colorado and Utah, two western states in which he had resided, and contrasts their economic performance with Montana's poorer economic performance. He attributes the comparatively unfavorable performance of Montana to its higher taxes. It is appropriate to examine this comparison more closely. The comparative data for the three states for the ten year period 1981-1991, presented below, is instructive.

The data presented in this table reveal that although per capita personal income did grow at a slightly faster rate in Colorado and in Utah, than in Montana, but contrary to Natelson's assumption, state taxes in both Colorado and Utah for the ten year period grew annually at a much higher rate than in Montana. It is clear from the relative performance of Montana's economy in the ten year period that it was not a case of comparative lower tax growth producing higher income growth, as the Natelson hypothesis had assumed would be the outcome. To the contrary, a much lower rate of Montana tax increase was associated with a relatively lower income growth, when compared with results in Colorado and Utah.

A further development in tax trends, in the period from Fiscal Year 1992 to Fiscal Year 1993, showed that while total state tax collections for all U.S. states in the aggregate increased by an inflation-adjusted 4.9 percent, representing the largest annual increase in state tax receipts since 1985, one of the five states which ranked highest in tax growth relative to personal income growth was Colorado (contrary to Natelson's reported perception of that state). In the same period, which precedes by a year the launching of Natelson's anti-tax crusade, Montana ranked among the top five states in which personal income grew faster than state taxation increases. In this 1992-1993 period, comparative data of annual state tax growth versus personal income growth show that Colorado taxes grew at a 22.9 percent greater rate than personal income, Utah taxes grew at a 2.8 percent greater rate than income, while Montana taxes experienced a minus 3.3 percent rate of growth versus personal income growth (Tax Features, Tax Foundation, January 1994, pp. 1, 2).

In Professor Natelson's effort to support his principal hypothesis, namely that "researchers repeatedly have found statistically significant associations between particular measures of relative state tax burden and indices of subsequent comparative economic growth," he commits two errors of methodology. He fails to document the source for this statement, and, to make matters worse, he makes the equivocal assertion that "while association does not absolutely prove causation (and certainly not exclusive causation), I thought the circumstantial evidence sufficiently strong...." The unwary reader is invited to believe what is incorrect, to wit, that there are circumstances in which causality can be established by association. The causal connection, if any, between tax policy and performance of the economy, especially at the state level, where all possible variables are hard to identify, is elusive.

It is appropriate to comment briefly on considerations that are often over looked by Montana's tax opponents, and which received little or no attention from Natelson. Montana is one of the only five American states without the sales tax. That tax accounted for 32.3 percent of all state tax collections in the U.S. in fiscal year 1993. (Tax Features, Tax Foundation, January 1994, p. 2). Inevitably, as a consequence, Montanans pay generally higher property and income taxes than do residents of other states. Natelson ignores the inflation factor when considering the growth of tax collections. Inflation rates were especially high in the late 1970s. One may recall the Carter "misery index' of that period.

Other factors which impose constraints on this state's economy and are easily overlooked include its geographical size and remoteness from markets, its oversupply of sparsely populated counties and school districts (an aspect that supporters of reinventing government might usefully address), and a tax structure (but not the rate of taxes) which imposes substantial disincentives on business enterprises. Montana, traditionally and unavoidably, has relied on extractive industries and the production of raw materials (e.g., in agriculture and timber products) which are shipped out of state for processing elsewhere. More than a different level of taxation will be required to change that stubborn reality. The last 10-15 years have not been kind to the market for important Montana basic industries including agriculture, oil and gas, wood products, and coal mining. Declining prices in these commodities, determined by national or world markets, have adversely impacted important sources of Montana tax revenue (Montana's Economy Trends, Bureau of Business and Economic Research, The University of Montana).

Curiously, Natelson fails to comment on the 1993 Montana Legislature s success in adopting a budget for Fiscal Years 1994 and 1995 which reduced general fund expenditures for state agencies "by $87.2 million below what the Legislative Fiscal Analyst estimated was needed to maintain services at the current level." (Michael J. Laslovich, Paper presented at 1993 Western Political Science Association Meeting). The Legislature's success in making cuts in the budget subn-dtted by the Director of the Office of Budget and Program Planning is worthy of note, especially since that budget official later signed one of Natelson's personal petitions opposing HB671, tax legislation which was needed to balance the budget that his office had prepared and submitted earlier.

What drives the tax protest movement is unclear. Professor Natelson bases his support of the cause that launched the campaign of his Montanans for Better Government to suspend HB671, as well as place it on the November 1994 ballot, on the alleged relation between Montana's tax policy and the performance of its economy. Many of his followers probably assume that taxes are too high. Too high in comparison to what?

The weakness of Natelson's position has been exposed in the preceding analysis. Studies by others, including Stan Nicholson, have found that if adjusted for inflation Montana state and local taxes in the aggregate in constant dollars have not increased during the period reviewed in this article.

The Tax Foundation estimated that in 1993 Americans paid $I.9 trillion in taxes to federal, state, and local governments in toto. This tax bill equals 30.65 percent of the Gross Domestic Product. The Economist has frequently reported data indicating that on a comparative basis the tax bill of Americans is the lowest of that of any of the seven major industrial nations of the world.

On what basis then does the fanatic anti-tax frenzy thrive? Wasteful government programs are often cited, but there is little agreement on which programs are wasteful and in need of curtailment. There are reports of wide spread distrust of government at all levels, and national polls periodically indicate that majorities believe that the country is headed in the wrong direction. It is also possible, as Harold Lasswell, a noted political scientist, contended in Psychopathology and Politics, that people project their private frustrations on public objects.

The tax conflict in Montana is far from over. Two constitutional initiatives, CI-66 and CI-67, have been proposed recently. If adopted, they would effectively institute a form of minority rule by requiring two-thirds and, in some cases, three-fourths majorities to enact tax increases, thus making it possible for minorities to decide tax policy. Interestingly, Professor Natelson, who celebrated his success in obtaining the signatures of 22 percent of the Montana electorate, suspending HB671, an example of minority rule, also supports both CI-66 and CI-67 (Missoulian, April 10, 1994).

The late Justice Holmes once remarked, "When I pay taxes, I buy civilization." That civilization has flourished in America under a system of representative democracy based on rule by majority. What the tax fanatics seek to establish in Montana is a new system resting on plebiscitary democracy. If they succeed, much that we prize in Montana's present system of representative democracy, and the civilization it preserves under responsible majority rule, will be imperiled.