Taxing charity?

Nevadans have been asked to support an amendment to the state constitution that would make it easier for legislators to increase the tax burden and would create uncertainty over the tax structure.  Question 3 on the November ballot will read:

Shall the Nevada Constitution be amended to require that, before it can enact an exemption from property tax or from sales and use tax, the Nevada Legislature must: (1) make certain findings regarding the social or economic purpose and benefits of the exemption; (2) ensure that similar classes of taxpayers must meet similar requirements for claiming exemptions; and (3) provide a specific date on which the exemption will expire?

Measures that require sunset clauses on all tax exemptions may be well-intentioned by attempting to limit the scope of corporate welfare schemes.  However, there would also be a host of unintended consequences.  For example, some of Nevada's most significant tax exemptions include property tax exemptions for entities such as charitable organizations or churches and sales tax exemptions on necessities such as food items.  These types of tax exemptions are generally of greatest benefit to low-income families.  If such exemptions were allowed to expire, it is low-income families who would be penalized the most.

What should be of even further concern to Nevadans is that the prospect of a perpetually changing tax code would increase the cost of business and could endanger some specific business models, including tax-exempt non-profit companies.  The risk of potentially losing their tax-exempt status could preclude such businesses from opening in Nevada.

In fact, requiring sunset clauses on all tax exemptions may be completely unnecessary for limiting the scope of dubious exemptions such as corporate welfare schemes.  There is nothing that currently prevents the Legislature from including a sunset provision into any new tax exemption or from developing a fiscal study of the proposed exemption.  In fact, the Legislature already does this with regularity.  Measures such as those included in question 3 would only change this by requiring that these things be done when considering every proposed tax exemption.

What requiring sunset provisions would do is accomplish an important political goal for supporters of big government.   Mandatory sunset provisions would allow tax cut opponents to place limits on exemptions that have broad political support and would allow them to postpone the debate over such measures until a time when they might be more easily defeated.

This recognition is significant considering the fact that this policy is being presented to voters at a time when some policymakers are calling for tax hikes to protect large government spending in the face of looming budget shortfalls.  If state policy were to require sunset clauses on all tax exemptions, then Nevadans should expect legislators who believe in big government to allow even worthwhile tax exemptions to expire whenever government revenues decline.

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