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Attack on the Tribal Middle Class, Part III

(Read part I and part II.)

Indian Country had established its own middle class even before the creation of what we now know as the United States. Although now shaped by federal self-determination policy, we are our own organic creation, with a tribal middle class rooted deep in the American past.

Take, for example, the Cherokee Nation. By the early 19th Century, the Cherokee had their own government, equipped with a constitution, judicial system, and police force, as well as their own thriving tribal economy. For many Cherokee, tribal economic activity had raised them to at least modern middle-class socio-economic status.

Then, in the late 1820s, Georgia passed a series of laws denouncing the Cherokee and asserting a supposed right to enforce state law inside of tribal territory. The attack, which was purportedly made in the name of “states’ rights” to manage all lands within their borders, drew support from those new Americans who thought “the tribes of Indians inhabiting this country were fierce savages, whose occupation was war, and whose subsistence was drawn chiefly from the forest.” (Johnson v. M’Intosh). In reality, the Cherokee were the very opposite of the “savage” other who they were portrayed. Again, the Cherokee Nation had a strong government and vibrant economy, with a surplus of individual Indian wealth.

It was that wealth surplus, i.e., the existence of a Cherokee middle class, that made the Cherokee particularly susceptible to political attack. Inferring a zero-sum game of wealth accumulation, Georgia, aided by the anti-tribal Jackson Administration, coveted that surplus. Georgia and its allies in the White House did not stop until Cherokee wealth surplus had been extracted and the original Cherokee economy
destroyed. Nearly 200 years later, that history threatens to repeat itself, throughout Indian Country.

Consider the various tribal middle class protagonists from Part Two, all of who are under state and federal attack today:

The Relocated Indian. In August, the Eighth Circuit Court of Appeals upheld Minnesota’s tax on the retirement income of Charles Diver, a Chippewa who the United States relocated to Ohio in 1960. He worked there as a dockworker until 1998, when he retired and returned home to the Fond du lac Reservation. Ignoring any notion of federal constitutional due process, the court allowed Minnesota to tax the pension that Diver earned in Ohio and now receives on the reservation, even though “Minnesota could not have taxed his wages as he received them because the state did not have the required nexus.” (Fond du lac Band of Lake Superior Chippewa v. Myron Frans). Minnesota could not legally do the same to a retired or middle class non-Indian.

The Indian Tobacco Retailer. In September, the Ninth Circuit Court of Appeals held that Washington could impose its excise taxes on tribal members who sell tobacco

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products to non-Indians on tribal lands. The lone dissenting justice observed that a review of the economic reality “likely would reveal that the tax at issue imposes an economic burden on Indians in the Yakama Nation,” which would thus be illegal. But, he wrote, “the law requires an analysis through a prism that blocks economic reality.” (Yakama v. Gregoire). Meanwhile, legions of Washington citizens buy goods in Oregon to dodge Washington sales taxes, and Washington does nothing to collect those taxes.

The Indian “Value Generated” Entrepreneur. As part of the multibillion-dollar Master Settlement Agreement with four major tobacco companies, 26 states agreed to snuff out tribal tobacco economies by enacting statutes – authored by the major tobacco companies – that force tribal companies to submit to state regulation and to pay millions of dollars into escrow accounts in order to “level the playing field” for Big Tobacco. Most recently, the federal government passed the PACT Act, agreeing to do the states’ dirty work by helping to collect their sin taxes from tribal tobacco businesses – and thereby protect Big Tobacco’s 96% tobacco market share.

The Tribal 8(a) Executive. Last year, Democratic Senator Claire McCaskill introduced legislation that would push federal 8(a) contracting preferences – which she describes as “loopholes” – back to the pre-Regan Era status quo for the tribal private sector discussed in Part Two. The estimated result of the legislation would mean a loss of more than 35,000 jobs worldwide, of $171 million in revenue to Alaska Native peoples alone, and of over $11.1 million in educational scholarships to more than 3,200 Indian recipients – all of which affronts the new and next generations of tribal middle class.

The Gaming Per Capita Indian. In California, the state has successfully taxed the per capita proceeds of on-reservation Indian gaming. Federal law supports the tax-exemption of such proceeds. However, at least one federal court has held that federal law does not preempt California’s state income tax on those proceeds once they fall into the hands of Indians living off-reservation – even if their tribe, like several California tribes, is landless. This per se attack on the new model of on-reservation, economic sovereignty directly impacts the per capita middle class Indian.

Despite current U.S. commitments to “give Native American families and communities the tools that they need to succeed,” leading tribal political scientists note bipartisan “signs of instability in the support for self-determination” based upon the “rising economic and political clout of Indian nations, . . . often seen as threats at the local level to non-Indian governments.” In reality, these perceived “threats” are merely
excuses to divest tribal economies of sovereignty-derived income – economies that by their very nature want nothing from non-tribal governments.

Just as happened to the Cherokee Nation nearly 200 years ago, non-Indian governments are now attempting to reach into Indian Country and extract every possible dollar from tribal economies. Not surprisingly, with states facing an ever-expanding budget deficit, taxation is the states’ modus operandi against the tribal middle class. Tax exporting doctrine, however, proves that is tribal governments – and thus tribal citizens – not state or local governments, which bear a disproportionate financial burden vis-à-vis governmental services rendered. One study found that “[o]n most reservations, there are few retail stores and tribal members must go off reservation and pay state taxes on everything they buy. Nationwide, this amounts to $246 million annually in tax revenues to state governments.” In other words, state taxation of the tribal middle class is economically unjustified; it is not merely the consequence of the financial downfall suffering all segments of the Great Recession economy. Instead it is a matter of political, racial and class warfare against American Indians and new tribal wealth surplus.

Make no mistake, tribal sovereignty, and the vast economic benefit it brings to Indian and non-Indian America, is under siege. Non-tribal governments are once again speaking the language of assimilation and termination in an attempt to impede or extract value from any tribal economic endeavor that they perceive does not benefit the non-tribal middle class or private sector. Instead of brute physical force, they now deploy the power to tax, legislate, litigate and otherwise exploit sovereignty-based revenue from
everything Indian Country and its tribal middle class have worked so hard to rebuild over the last 200 years.

Indian Country must now recognize this growing state and federal attack for what it is – an attack on Indian sovereignty. Then, only by taking preemptive legal and political steps to expose, confront and countervail those insurgent non-tribal forces that threaten American Indian economies, will we deter the termination of the new tribal middle class.

Gabriel S. Galanda, an enrolled member of the Round Valley Indian Tribes, is a partner with Galanda Broadman, PLLC, in Seattle. He represents tribal governments, businesses and members in all varieties of dispute and business dealing. Gabe can be reached at (206) 691-3631 or