It's the Amount of Taxes

By Doug French
  • Monday, June 23, 2003

Governor Kenny Guinn’s proposed billion-dollar tax increase has rallied many Nevada freedom fighters of divergent views to work together. All agree that the governor’s attempt to fundamentally change the Silver State from a pro-freedom, pro-business state to a clone of neighboring California—with all the Big-Welfare, Big-Bureaucracy bells and whistles—has to be blocked.

Although the anti-tax crowd is unanimously hostile to the idea of a state government 35 percent bigger than it is today, differences quickly develop on what’s most important. Is stopping a certain type of tax from being implemented paramount? Or is reducing or eliminating the total amount of the tax increase most important? In other words, should we be worrying about the type of taxes proposed, or the amount of taxes proposed?

As the late great economist Murray Rothbard wrote in Power and Market, “By far the most important impact of taxation results not so much from the type of tax as from its amount. It is the total level of taxation, of government income compared with the income of the private sector, that is the most important consideration.”

“Far too much significance,” Rothbard stressed, “has been attached in the literature to the type of tax—to whether it is an income tax, progressive or proportional, sales tax, spending tax, etc. Though important, this is subordinate to the significance of the total level of taxation.”

Some in the ant-tax crowd feel that if they can stop a gross receipts tax (GRT) or a universal business tax (UBT) or other such tax from being implemented, it won’t matter how much in taxes is approved: They will have stomped out the fire, and can declare victory and go home.

There is no question that the GRT and the UBT are disasters in waiting for Nevada. A gentlemen that I spoke with who owns a car dealership in Seattle, Washington, which has a B & O (“Business & Opportunity”) tax similar to the GRT being proposed for Nevada, described the paperwork and recordkeeping in language that can’t be printed here. In fact, he complained as much about the paperwork required as he did the six-figure monthly check he has to send to Olympia.

Clearly, the darling of the gamers and Kenny Guinn—the GRT or UBT—must be stopped, but the “Make state government as big as you want to, just don’t enact a GRT or UBT,” bargain should not be made.

Expanding state government’s budget from $3.7 to $5 billion will have horrible ramifications for Nevada taxpayers. John C. Calhoun identified the conflict many years ago, pointing out that, “The unequal fiscal action of the government is to divide the community into two great classes: one consisting of those who, in reality, pay the taxes and, of course, bear exclusively the burden of supporting the government; and the other, of those who are the recipients of their proceeds through disbursements, and who are, in fact, supported by the government; or in fewer words, to divide it into tax-payers and tax-consumers.”

Taxpayers must not only support themselves, but they are forced to support the tax consumers as well. Government does not produce anything that can be sold. Government expenditures are not investments. Government always acts as a consumer of resources. The more resources government is allowed to consume, the less that is available for the private sector.

When state government has more money available to it through increased taxation, “it distorts the allocation of resources in the society, so that consumers can no longer most efficiently satisfy their wants,” notes Rothbard.

What the government does through taxation is forcibly take money from taxpayers, then turn around and spend the money, bidding resources away from these same consumers. This leaves taxpayers worse off, lowering their standard of living, while the standard of living for government’s tax consumers is increased. As the burden of government grows, the ability of taxpayers to support themselves—and the ever-increasing number of tax consumers—diminishes.

Government cannot support itself, so it must learn to live within a limited budget. If too much of a burden is placed upon the taxpayers of Nevada— no matter how the money is taken—they will eventually leave for a tax-friendlier state.

As the special session of the legislature reconvenes, it is important that the anti-tax message be unified. Nevada’s state government has plenty of our money to operate with. We must fight equally against both the amount of new taxes and the new categories of taxation.

Doug French is executive vice president of a southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.

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