By Gavin Clarkson
Just as anthonomus grandis, the boll weevil, migrated into the United States as an invasive species to suck the life out of cotton crops, so too are state regulators and “tax weevils” crossing into Indian Country to suck the life out of tribal economies.
The founding fathers were fully aware of the grave threat to tribal economies posed by the states; thus they gave Congress the exclusive “power to …regulate Commerce…with the Indian Tribes.”
Beginning in 1790, Congress passed a series of laws asserting federal primacy in Indian affairs completely preempting state involvement in tribal economies. The Supreme Court was similarly aware of this threat. Citing both the Constitution and the relevant acts of Congress, such as the Indian Trader Act, Chief Justice Marshall famously rebuked Georgia’s attempt to require non-Indians to obtain a license to interact with Indians as “repugnant to the Constitution, laws, and treaties of the United States.” Marshall went further, declaring that the Cherokee Nation was “a distinct community, occupying its own territory, with boundaries accurately described, in which the laws of Georgia can have no force.” Congress subsequently reinforced the Indian Trader Acts in 1834, noting that:
“Each tribe, by adopting those laws as their own, and establishing competent tribunals, may relieve us from the burden of executing them, and it is hoped that this will be done . . . . Such regulations must be made either by the United States or by the tribes. They will be more satisfactory if made by them, than if made by us, and it must be our desire to do nothing for them which they can do for themselves.“
Unfortunately, just as the boll weevil cost America’s cotton producers more than $15 billion until determined eradication efforts eliminated infestations nationwide, state tax weevils have ignored the intention of the founders and have similarly sucked billions of dollars out of tribal economies.
Tribal governments, just like state governments, need to develop a tax base in order to provide vital services to their citizens. Given the exclusively federal nature of the Indian Commerce Clause and the Indian Trader Acts, one would think that the Supreme Court holding in Warren Trading Post that “Congress has taken the business of Indian trading on reservations so fully in hand that no room remains for State laws imposing additional burdens upon traders” would be sufficient. Yet just as complacency, or the occasional hurricane, can result in boll weevil infestations in areas once thought to be weevil-free, so too can complacency, or periodic state budget crises, allow the tax weevil to resume its pernicious assault on tribal economies.
Thus, although most state governments provide little or no services within Indian Country, when state economies were lagging, voracious tax weevils aided by fundamentally flawed Supreme Court jurisprudence, particularly Cotton Petroleum, overran the boundaries of tribal sovereignty and created a pernicious problem of double-taxation for on-reservation economic activity.
When states wrongly insist on taxing on-reservation resources and economic activity, they make otherwise economically viable projects impossible to pursue. Perhaps the single greatest impediment for tribes that want to monetize the wealth contained within their natural resource endowment is the dual taxation placed on tribal energy projects after Cotton Petroleum. Thus, tribal governments face a Hobson’s Choice when faced with dual taxation. As the National Congress of American Indians noted, if tribes:
impose a tribal government tax, then the resulting dual taxation drives business away. Or, tribes collect no taxes and suffer inadequate roads, schools, police, courts and health care. To add insult to injury, reservation economies are funneling millions of tax dollars into treasuries of state and local governments who spend the funds outside of Indian country. This dilemma is fundamentally unfair to tribal governments, undermines the Constitution’s promise of respect for tribal sovereignty, and keeps Indian reservations the most underserved communities in the nation.
The impact is particularly acute for tribes that are trying to grow their economies by attracting outside capital and non-Indian businesses to the reservation. As one tribal chairman noted, “Our non-Indian customers and business partners are targeted for tax assessment by the state and local governments simply because they are non-Indians. As a result of this discriminatory taxation, our commerce with them is economically burdened and our economic growth frustrated.”
Since the Indian Trader Act was originally passed in the vacuum of accurate and clarifying federal regulations, the states and the courts have filled the void with a patchwork of case law that could not have done a better job at destroying tribal economies than if it had been by purposeful design. What more is the federal trust responsibility if it is not intended to promote economic success in order to sustain self-sufficiency? Under no definition of trust responsibility is the goal to ensure and enforce poverty in perpetuity.
The dual tragedy of dual taxation is that not only are tribal economies harmed, but so too are state economies. Research suggests that for every $1,000 of exclusive tribal taxation authority, the surrounding states will receive upwards of $10,000 in benefit from increased economic activity in off-reservation communities as well as reductions in welfare transfer payments as on-reservation poverty diminishes. Eliminating dual-taxation should have been an easy win-win, but the tax weevil is a pernicious and stubborn species, and complaints from state tax collectors stymied efforts at the Department of Interior to solve dual taxation via updated Indian Trader regulations.
Congress, however, has additional tools at its disposal that can solve the problem, and Ronald Reagan’s 1984 Presidential Commission on Reservation Economies gave us a good starting point, and President Trump’s America First Policy provides the final component.
President Reagan told the nation in 1983 that dual taxation is the death of tribal economies, and the 1984 Commission called for exclusive tribal taxation authority on reservations so that tribes would be empowered to provide governmental services and infrastructure for both tribal members and non-Indians living in Indian Country. Amending the Indian Trader Act to secure exclusive tribal taxation authority will lead to dramatic increases in state revenues and significant reductions in welfare transfer payments, both of which will enhance state budgets.
If the states suffer any short-term discontinuities in tax receipts, the American First Policy demands that First Americans be ahead of foreign interests. Thus, any near-term shortfall, albeit unlikely, can be compensated with transfers from our foreign aid budget until the economic boom associated with the eradication of the tax weevil is sufficiently large. The result is a win-win for all.