Nevada tax myths
Misconceptions allow our politicians to dodge accountability for bad public policy.
- Thursday, December 6, 2007
You’d never know it from the incessant calls for new taxes on Nevadans, but Silver State residents already pay some of the highest taxes in the nation.
Recently the Tax Foundation in Washington, D.C., reported the percentage of income taken by local, state and federal taxes from individuals in different states. Nevadans bore the fifth-highest burden in the nation, with only residents of Connecticut, New York, New Jersey and the District of Columbia paying more.
Some of the explanation is relatively benign. Nevada’s economy does well, so it produces a larger proportion of successful people, and they end up paying federal income taxes at the higher rates. Even average-income people pay more income taxes, because many more of them are working and earning. So all this helps skew Nevadans’ federal share upward, raising the total reported burden.
However, that’s only part of the story. Nevadans also carry substantially bigger tax burdens at state and local levels than the state’s official figures — or the state’s zealots for ever higher taxes — would have you believe.
In the last generation, stealth tactics by Nevada’s politicians and its government employee unions quietly drove up Nevada’s state and local taxes over 17 percent. In 1980, Nevadans’ state and local tax burden as a percentage of income was 8.6 percent. By this year it had risen to 10.1 percent — an increase of 17.44 percent.
The assault on Nevada taxpayers is unrelenting. In the 1980s and 1990s Nevada taxes — including the taxes called “fees” — grew at rates exceeding those in all other states. Then, in the first years of this new century, the increase of Nevada’s per capita tax burden exceeded that of every state but one — New Jersey.
How does all this square with the conventional wisdom — that Nevada is one of the lowest-tax states in the entire country?
First, it is true that Nevada remains one of the better states when it comes to state and local taxes. Although the situation of taxpayers across the nation continues to deteriorate, Nevada’s situation, though deteriorating, has not yet caught up to some of the worst states.
Second, the conventional wisdom, in many respects, is simply not accurate. Evaluating organizations (business magazines, for example) often believe they must defer to the self-protecting labels that state and local politicians often choose to place on revenue measures. For example, in virtually every state, politicians always prefer to designate revenue-raising measures as “fees,” rather than taxes — even when, by traditional definitions, those “fees” indeed are taxes. “Taxes” get voters’ hackles up and cause re-election problems for politicians. “Fees,” on the other hand, are usually still given the benefit of the doubt by voters. This particular ambiguity is one that Nevada politicians were some of the first to exploit and have continued to exploit for over a generation.
A third answer to the question lies with economic myths that politicians love to exploit and spread. These misconceptions — facilitated by the minimal economic knowledge of media professionals and the electorate at large — have great utility in the pursuit of bad public policy. They allow politicians to dodge voter retribution for legislation that benefits the politicians’ special-interests allies but otherwise disadvantages citizens in general.
One such myth rampant in Nevada presumes that taxes on “business” somehow fall only on business owners — not on employees and their families, and not on individuals employed out in the wider state economy. The fact is, however, that the economic burden of a tax almost always extends much farther into the state economy than the targeted businesses. Another such myth is that tax increases imposed by legislators won’t really be paid by Nevada residents but instead primarily by out-of-state tourists. The implication, however — that this is “free money” for the state, there for the taking — is not true.
For an in-depth and well-documented look at hidden dimensions of the Silver State tax situation, be sure to download NPRI’s forthcoming report, “Getting Plucked in Nevada: How Politicians Secretly Grow Your Tax Burden.” It will soon be available at www.npri.org.Steven Miller is policy director at the Nevada Policy Research Institute. This commentary was first published in the November 2007 issue of the Nevada Business Journal