State’s economic czar talks business & MAEDC honors Pyramid Lumber & CM Manufacturing.

Perception of high taxes blamed for hurting Montana’s poor growth

As Montana looks for economic growth, state tax rates are always an issue.

By MICHAEL MOORE of the Missoulian

That’s true, Montana’s top business officer said Friday, even when the issue is one of perception
more than reality.

For instance, David Gibson said Montana is viewed as a state with high personal income taxes, even
though the effective tax rate is lower because taxpayers can deduct the amount they paid in federal
taxes from state income.

What matters is the perception, Gibson said while hosting an economic growth meeting in Missoula.
And the perception is that Montana’s personal income tax of 11 percent is exorbitant, even though
the rate after the federal deduction averages about 6 percent.

"We do think it leads people to make some decisions about moving to or staying in Montana,"
Gibson said.

Gibson’s remarks Friday morning weren’t political statements about what the state should do with its
tax policies; he was simply outlining how Montana ranks with other Western states on different taxes

"(Taxes) are certainly a driver in a number of communities," Gibson said. "… They’re one part of a big
machine."

For the most part, Montana taxes are average compared with other Rocky Mountain states.

In property taxes, for both residential and commercial property, Montana’s in the middle.

"So property taxes are not really a competitiveness issue for people coming here or staying here,"
Gibson said.

In corporate income taxes – called a corporate licensing tax in Montana – Montana is a little above
average, although that’s primarily because three states – Nevada, South Dakota and Wyoming – have
no corporate income taxes.

Tax policy, Gibson said, is sort of like a military convoy.

"It’s just fine to be in the middle of the pack," he said.

Where Montana is out front and leading, perhaps dangerously so, is on capital gains taxes. Montana
treats capital gains as ordinary income, while the federal government taxes long-term gains at
different rates. The upshot is that Montanans with long-term capital gains pay what amounts to a
higher marginal rate than people in surrounding states.

And while many associate capital gains with the wealthy, the truth is otherwise, Gibson said. Last
year in Montana, about 37,000 households with income less than $25,000 reported capital gains of
more than $93 million. Another 26,000 households with income between $25,000 and $50,000 had
another $106 million in such gains.

"We think there’s a very real issue with the capital gains rate in the state," Gibson said.

After Gibson’s tax briefing, Friday’s gathering broke into small groups to talk about specific areas of
economic development. Meetings in Missoula and Whitefish on Friday are the last in Gibson’s series
of statewide meetings. Now comes the hard part – assembling the input into a long-term blueprint for
future economic growth.

Gibson talked about the ongoing effort at the Missoula Area Economic Development Corp.’s annual
meeting at lunch.

"The state has a $20 billion economy, so we’re not going to turn that around overnight," Gibson said.
"We need to focus on the big things."

For instance, Missoula might attract a new business that brings 30 jobs to town. For Missoula, that’s
great, Gibson said. But to the state’s economy, it’s next to nothing. More important for the state is to
create an environment that will draw business to Montana, or, perhaps more importantly, keep
businesses that are already here healthy and expanding.

In fact, Gibson said the state will spend only 10 to 15 percent of its energy trying to lure business to
Montana from other places. The vast amount of time, energy and money will be spent on business
retention.

"We are not the main recruitment agent," Gibson said. "That’s more a local issue."

Gibson also stressed that the state can’t be the main agent of economic growth.

"It’s got to be a private-public partnership," he said. "Government can’t do this alone."

Gibson said the eventual economic plan will be a long-range strategy that will be fully realized over a
10-year period.

"It’s time to move out of the talking phase and move into action," he said.

To review the state’s Framework for Economic Development plan, go to
http://www.discoveringmontana.com/gov2/css/econdev/default.asp.

Reporter Michael Moore can be reached at 523-5252 or by email at [email protected].

Business awards handed out

The Missoula Area Economic Development Corp. handed out its "Business of the Year" awards at its
annual gathering Friday.

Each year, MAEDC presents two awards – the Frank Worden award to a small business with less
than 50 employees, and the C.P. Higgins award to larger businesses with more than 50 employees.

The Worden award went to CM Manufacturing Inc. http://www.cmman.com , which makes parts for U.S. military aircraft. CM
Manufacturing went into business in 1984, but moved to Missoula in 1996. The company has 15
employees and makes high-strength steel and nonferrous parts for aircraft.

"The more they fly the planes, the more work we do," CM’s Ken Johnson said Friday. "… The future
looks bright."

The Higgins award went to Pyramid Mountain Lumber Co., the Seeley Lake mill that was on the
verge of closing before a public-private financing plan spearheaded by MAEDC helped salvage the
company.

"We’ve been incredibly blessed over the last 15 months," said Pyramid’s Loren Rose. "… We almost
had to shut down to find out how much people cared about us."

Once on the brink of shutting down, Pyramid turned a profit in 2001 and appears to have a profitable
future after installing new equipment that makes the mill much more efficient.

Michael Moore, Missoulian

http://missoulian.com/display/inn_news/news03.txt