Critique of Seneca Nation Shows Economic Confusion

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SALAMANCA, N.Y. - Warren Buffett's new and improved Buffalo News fell into
Cardinal Richelieu's very old economic fallacy in its recent multi-part
critique of the Seneca Nation of Indians.

A common theme in the five days of hammering was that nation members didn't
pay enough taxes, either to their own government or New York state. The
reporting team cloaked this familiar special-interest complaint in a
display of concern for the income disparity between the rich Native
entrepreneurs and the poor, disabled Indians left behind.

The sincerity of this concern can be measured by the scant attention The
News team paid to the social programs now under way or in the works with
the Seneca Nation's new casino revenue. But if, as we suspect, their real
worry was that Indians are getting rich, their obvious economic agenda is
designed to solve that problem.

Their outlook parallels that of the 17th century French absolutist Armand
Jean du Plessis Cardinal de Richelieu, in the face of a remarkably similar
situation. As chief minister of Louis XIII, Richelieu devoted himself to
centralizing power and raising taxes. Before he took over, several French
regions, called the "pays d'etat," were in effect "domestic dependent
sovereigns" by virtue of coming into the realm through marriage agreements,
which some historians call the equivalent of international treaties. They
had their own parliaments and much lower taxes than the rest of the kingdom
and as a result were much more prosperous. Greedy for their wealth,
Richelieu constantly maneuvered to destroy their special status and raise
their taxes. He succeeded and also destroyed their prosperity.

As Montesquieu later observed in his "Spirit of the Laws", this campaign
destroyed a system that spread its benefits afar and should instead have
been enjoyed. After the French Revolution, that most astute observer Alexis
de Tocqueville singled out this destruction of regional institutions and
the disastrous rise in taxation as a major cause for the fall of the Old
Regime and the tyrannies of the new one.

If Richelieu, Montesquieu and Tocqueville were too obscure for The Buffalo
News writers, they could have learned the same thing from a name they
should know from their own sports pages. Former Buffalo Bills star
quarterback Jack Kemp, later Congressman from the Buffalo area and
Republican vice presidential candidate in 1996, based his political career
on "supply-side economics," which derived from 18th century reflections on
the disastrous policies of the 17th century. Kemp preached that lowering
taxes would stimulate economic growth. As Secretary of Housing and Urban
Development he sponsored Enterprise Zones (still going in New York state as
Empire Zones), which mimicked the low-tax environment of Indian
reservations but without nearly as much success. Perhaps someday someone
will explain why the New York state legislature is willing to set up
tax-free zones for large corporations but wants to shut them down for
Indians.

Just days before The Buffalo News series started running, a Washington,
D.C. research group influenced by Kemp's economics released a fascinating
report on the Seneca territories. The study, which was not mentioned at all
in the News series, measured the economic footprint of the Seneca
businesses arising from the nation's sovereign status. By selling
cigarettes and gasoline without the state's high excise taxes, Seneca
entrepreneurs generated more than $360 million in retail sales and directly
employed more than 1,200 people. These benefits rippled through the
economy, creating nearly 1,700 additional jobs and a total of $103 million
in wages and benefits for New York state workers. Nearly all of this
activity would vanish, said the report by the American Economics Group, if
the state taxed Seneca sales.

The Buffalo News articles finessed the issue of state efforts to tax tribal
sales, which led to vehement protests from the Senecas and tribal grass
roots groups around the state in 1997. Instead, the articles campaigned for
internal tribal taxation. In a not too subtle call for income
redistribution, it contrasted a retired tribal member who couldn't get the
council to pay for an air conditioner with a tribal businesswoman who made
a $2 million profit selling the 64 acres used for the Seneca Allegany
casino. No logic whatever linked a legitimate private business deal with an
application for government money. (The News even described the land sale
inaccurately, since it would have been to the Seneca Territory Gaming
Commission, not the tribal government.) But The News was seeking emotional
support for its picture of the two Seneca Nations, rich and poor.

These disparities would be reduced, suggested the series, if Seneca
businesses paid a tax to their government. It gave a garbled account of
what it called "a bedrock of broken tribal law."

"Six times since the mid-1980s, the Seneca council passed laws aimed at
forcing the booming tobacco and gasoline businesses to give back to their
own people," said the first article. The trouble here, as the article
admitted later on, was that the reporters don't know what they were talking
about. They cited interviews with unnamed former tribal officers rather
than the texts of the laws, giving the excuse that tribal records "are
private." Their statement that current tribal tax laws are going unenforced
puzzles Seneca Nation President Rickey Armstrong Sr., who told Indian
Country Today that he knows of nothing on the books that matches The
Buffalo News assertion.

One of these phantom laws, it appears, was a tax compact that Seneca
leadership negotiated with the state government in 1989. This infringement
of tribal sovereignty caused a political upheaval that threw that
leadership out of office. Another was a 1994 measure The News attributed to
Robert Odawi Porter, a Seneca who was then tribal attorney and now directs
the Center for Indigenous Law, Governance and Citizenship at Syracuse
University. But this law was not merely a tax. It would have set up a
tribally-owned monopoly for wholesale distribution to Seneca businesses, a
controversial power grab from the get-go.

The involvement of Porter as a source for the series is revealing. He is a
close associate of a political faction in Haudenosaunee politics, which has
shown unrelenting hostility to private entrepreneurship.

But the idea of a Seneca Nation tax on business is still under discussion,
said President Armstrong. His administration has just enacted a hotly
contested ordinance to require retailers and wholesalers to obtain annual
licenses and is trying to bring some regulation to the Reservation free
market. Even though taxation "is a dirty word here," he said, some kind of
measure might not be too far away.

He said, however, that he understands why the business community is
reluctant to hand money over to a tribal government that in the past has
aroused widespread distrust. "The idea that there can be different leaders
every two years discourages the businesses from entering into long-term
agreements," he said. "I guess you can understand that some of the business
leaders are concerned that the president might not be there the next time,
and that their money either won't be accounted for or credited to them or
misspent."

The tax issue also ties into a New York state drive for price parity on
reservations, a fallback from its drive for outright taxation. State
negotiators have pushed compacts with other tribes that provided for a
tribal levy to a point at which prices would nearly match those of the
non-Indian neighbors. The argument is tribes would maintain their
sovereignty and reap a windfall of revenue while reducing the political
pressure their competitors are bringing on the state. This plan fails to
consider, however, whether anyone would bother to drive to a reservation
for gas or cigarettes without the lure of a significantly lower price. It
could wind up damaging the reservation economy almost as much as a
state-imposed tax.

While bypassing these considerations, The Buffalo News did manage to work
in hostile comments from a lobbyist for the National Association of
Convenience Stores, which has devoted itself to eliminating the tax
advantage for reservation businesses and the taxation powers of tribal
governments. This lobby pushed for the New York state legislature's budget
directive last year to start taxing reservation sales to non-Indians - a
unilateral action taken without the consent of the Indian governments.

This group is also behind a federal bill to eliminate Internet cigarette
sales. (According to the General Accounting Office, the research arm of
Congress, up to 40 percent of the Internet cigarette sales companies are
based on the Seneca's Cattaraugus territory.) With its allies in the
gasoline station business, it is supporting the wholesale attack on tribal
sovereignty launched by the anti-Indian Oklahoma-based One Nation group.

This narrowest of special interest groups has shown no concern for the
social cost of destroying reservation economies, even though the bulk of
the impact would fall on non-Indian employees and suppliers.

This imbalance brings Seneca Nation President Armstrong to see a hidden
agenda behind the News series. "What are they trying to obtain here?" he
asked. "All of our backing we gained against attacks by the state of New
York, we had eroded by these articles."

"Maybe I'm too suspicious or paranoid but I kind of link it to that," he
said. "These people have never been the champion of Native Americans, much
less the Senecas, and what is their motive? Every time Native Americans
might elevate themselves or stick their head over the rim, so to speak,
they slap it back down."

This attitude, which brought the State Legislature to mandate taxation of
Indian reservations, has found an echo in The Buffalo News. Like Richelieu,
it seeks to eliminate a prosperity it should be enjoying.