A limited pilot plan that would aid reservation economies by promoting tax-friendly incentives for private business creation and growth could easily have enough support in Congress to get done this year, tribal analysts say, but, for a myriad of reasons, legislators have yet to include it in their larger tax reform proposals.
In short, the plan calls for “tribal empowerment zones” that would offer tax-free incentives to private companies to establish a presence in a limited number of reservations in a limited area on each reservation.
“The re-establishment of tax-free zones in selected areas of Indian country will attract private enterprise to locate in Indian country and bring economic activity that promotes entrepreneurship, creates jobs, and brings trade in goods and services closer to the local Indian community,” Robert Odawi Porter, then-president of the Seneca Nation, testified at a hearing of the Senate Committee on Indian Affairs in May 2012, as he made a major push for Congress to support the plan—even offering legislative language to help make implementation as simple as possible.
For tribes without casinos, or for those with struggling gaming enterprises, supporters say the plan would both establish and diversify business and job opportunities for Indians. For tribes that already have successful gaming ventures, the plan would promote broader economic growth and wealth. Non-Indians, who would largely own the businesses and work at them, would also benefit.
Porter further told Congress that there has been no significant economic benefit for Indian country under current Indian reservation employment and investment tax credits that legislators have been extending for two decades.
“These wage and investment tax credits have not been large enough, or of long enough duration, or simple enough to administer, to induce the private sector to invest and locate new jobs in Indian country,” Porter testified, adding that he believes the broad scope of the current credits that all of Indian country is eligible for “has required Congress to water down the tax reform benefits to useless levels because the [Congressional Budget Office] scoring rules, driven by the potential immunity of millions of acres and people, have generated far too costly scores to be included in any comprehensive tax incentive package.”
But the reality is that the scoring rules have created hypothetical scenarios that have not borne out—rather, most of Indian country has not had the business structures in place to benefit from the current congressional tax incentives, so the federal cost has not been as whopping as the mathematical formulas would suggest.
To get around that Catch-22, tribal officials nationwide continue to call for the targeted tribal empowerment zones that would have Congress “declare unlimited tax immunity within a limited number of footprints in Indian Country for a limited number of Indian nations,” Porter explained to SCIA last year.
“I suggest you shape tax reform law so as to restore complete tax immunity in a demonstration or pilot project that is constrained in order to make it cost feasible but with unlimited benefits to facilitate its success,” Porter testified. “If it works, this policy could be expanded in the future. If it does not work, the outcome would be no worse than the application of the current failed policy.”
The idea is simple; it would likely cost no more money than Congress already allocates toward tribal tax incentives, and there are portions of it that are attractive to Democrats and Republicans alike—yet it has gone nowhere to date.
Why not? Especially considering the widespread desire in the current Congress to enact tax reform?
“I have had specific discussions with [congressional] staff who have felt it was too radical an idea, particularly in the current economic environment,” said one tribal lobbyist who spoke on background as conditions in Congress on tax reform remain fluid. In other words, some legislators actually fear that this plan could be successful, and therefore it could end up costing the federal government more money than the largely useless tax incentives it currently offers tribes.
Another reason for the slow uptake is that tribes have been largely focused on getting congressional support for what is known as the General Welfare Exclusion that would end the Internal Revenue Service’s practice of taxing critical programs and services provided by American Indian tribes to their citizens. There has been limited success in this area, with Rep. Devin Nunes (R-Calif.) introducing legislation in early August in the House that would achieve that tribal goal.
That success has come at a cost to other tax reform ideas that would benefit tribes, tribal financial experts say.
“In this environment, there are so many other tax issues that tribes are focused on—they are especially working on shoring up their jurisdiction,” said Dante Desiderio, executive director of the Native American Finance Officers Association. “A lot of good tax reform ideas that would aid tribes are getting placed on the back burner.”
“Tribes have pushed so hard for the General Welfare Exclusion to be dealt with that I think there is little room for other tribal issues to be heard,” added the tribal lobbyist who has been working with congressional staffers on tribal tax reform proposals.
Still, many tribal financial and legislative experts say that important Congress members are intrigued by—and even support—the tribal empowerment zone plan—retiring Senate Finance Committee Chairman Max Baucus (D-Montana) among them—but none have yet included it in their larger legislative tax reform proposals.
Support from Baucus and House Ways and Means Chairman Dave Camp (R-Michigan), as well as White House buy-in, will be crucial to getting any tax reform done this year, tribal analysts agree—and the clock is ticking fast for anything to happen at all.
“Sen. Baucus and Rep. Camp are laying good groundwork for strong tribal tax reform, but the expectation that something is going to be done this Congress is fading,” Desiderio said. “It’s a possibility that looming budget battles could make something happen here, though, and we know Baucus and Camp are not backing away from getting it done.”