Democrats abandon pledge, seek to raise and make permanent tax on employment

  • Monday, May 13, 2013

CARSON CITY — Democrats in the Nevada Senate introduced legislation today to raise taxes on private-sector payrolls throughout the state and use the revenue to fund early-childhood education programs.

The proposal would raise rates under the Modified Business Tax (MBT) from 1.17 percent to 1.5 percent for firms with more than $250,000 in annual payroll and to 2 percent for mining firms.

When Democrats in 2009 increased the MBT from its original rate of 0.63 percent to 1.17 percent and passed it over then-governor Jim Gibbons’ veto, they said it would be temporary and would sunset on July 1, 2011.

Then, in 2011, with Gov. Brian Sandoval’s consent, legislators pushed the sunset date to July 1, 2013. And this year, Gov. Sandoval agreed to extend it once again — to July 1, 2015.

Now, all pledges for the tax to ever sunset appear to be forgotten by Democratic leaders.

Addressing the proposal, NPRI Deputy Policy Director Geoffrey Lawrence released the following comments:

Like their Senate Republican colleagues, Senate Democrats have based their tax-hike proposals on a faulty premise. Senate Democrats and Republicans alike erroneously claim that the failures of Nevada’s public schools are the fault of taxpayers who don’t pay enough into the bumbling system. Both caucuses willfully ignore objective facts provided by the federal education department, which show that Nevada is actually a relatively high spender for its region.

At $10,449 per pupil in 2011, Nevada spent substantially more on education than a majority of its neighbors. Arizona spent $9,559. Idaho spent $8,601. Utah spent $8,446. Yet, each of these neighboring states boasts test scores and graduation rates superior to Nevada’s.

Among Western states, only California posts worse test scores than Nevada, and California spends roughly $700 more per pupil than does Nevada. That only underscores what is apparent nationwide — that there is no correlation between spending levels and student performance.

That’s because states like Nevada are politically hidebound and spend very inefficiently — while the other states have implemented the policies closely associated with higher student achievement.

These policies include: increased school choice, expansion of charter schools, meaningful teacher evaluation systems and allowing alternative teacher certification. It’s particularly relevant that Nevada’s public schools spend substantially more than it would cost to educate children in privately run schools that significantly out-perform nearly all public schools. In 2008, the median private-school tuition level in Nevada was estimated at only $5,965.

Research has further shown that the particular programs for which Senate Democrats are eager to increase funding — class-size reduction, full-day kindergarten and early education — have largely failed to produce lasting gains in student achievement. That’s why NPRI has focused on the school-controlled variable with the highest impact on student achievement — teacher quality.

Responding specifically to the tax components of the proposal, Lawrence said:

It’s ironic that the Senate Democrats are proposing to give away millions in tax credits to Nicholas Cage and other wealthy film producers, claiming that tax breaks “create jobs,” while at the same time, they plan to raise taxes on native businesses. If lower taxes “create jobs,” then what effect do they expect higher taxes to have?

It’s too bad that Senate Democrats can no longer rely on the sage advice of former state senator Sheila Leslie, who correctly described the MBT as a “disincentive to hiring.”

In fact, the MBT is a poorly designed tax that suppresses wage growth, distorts the tradeoff between labor and capital and has produced highly volatile revenues. That’s why NPRI has proposed removing the tax altogether — not increasing its rate.

This proposal also flies in the face of advice from the Legislature’s own consultants. The famed 1989 Price-Waterhouse report on the state’s tax structure, for instance, declares that no industry should be singled out for punitive tax rates and that the net-proceeds-of-minerals tax that currently applies to mining is optimally designed.

It’s telling that lawmakers are so willing to discard their own tax consultant’s advice whenever they think they can wring more money out of taxpayers.