Taxes & Government Spending

Nevada’s tax burden is higher than you think

Geoffrey Lawrence

In Carson City, state lawmakers are considering whether to impose a “margin tax” on business.  For businesses taking in more than $2,740 a day in revenue, it would tax every dollar coming into a firm — except those falling under a complex, lawyer-pleasing array of possible deductions.

Texas is the only state that has a margin tax, one lawmakers there created in 2006.  The Texas experience has demonstrated it’s a problematic tax instrument — introducing more serious economic distortions and disincentives than do alternative tax instruments yielding the same amount of revenue.

But, the big question is: Can Nevadans afford a new tax?

Whether tax dollars are remitted by businesses or directly by individuals, all taxes are ultimately paid by individuals.  Business taxes just tax individuals indirectly, because, by driving up business costs, these taxes either suppress employee wages, push the prices facing consumers higher, or both. 

In either case, household purchasing power declines just as it would with more direct forms of taxation.

So, should Nevada householders be forced to pay more?

The answer is no for many reasons.  The state still suffers from the nation’s highest rates of unemployment and personal bankruptcy.  Beyond that, however, Nevadans already pay more in taxes than they are frequently led to believe.

Nevadans have grown used to hearing that they live in a uniquely “low-tax” state and, as a result, should (always) be capable of shouldering a bit more for public expenses.  The Tax Foundation, for instance, ranks Nevada third in its “2013 State Business Tax Climate Index” — a ranking primarily reflecting the state’s lack of personal or corporate income taxes.

However, as with most national “tax climate” rankings, this one mischaracterizes Nevada. That’s because it neglects to consider some unique tax instruments imposed in the Silver State.

For instance, the Tax Foundation ranking doesn’t consider Nevada’s Modified Business Tax — a levy against private-sector payroll — or the special excise taxes on the state’s largest industries, including gaming, mining and live entertainment.  Together, these taxes account for nearly half of state general-fund revenues, and yet they’re ignored by the Tax Foundation index.

A better measure of the financial burden that state and local governments place on citizens is how much they extract from the private economy.  Since all state and local governments must report own-source revenues to the U.S. Census Bureau, this figure is easily calculable.  In Nevada, the combined tax burden was $5,742 per capita in 2009 — 29th highest among the states.  With an average household size of 2.65, that amounts to $15,216 per household for a single year or more than $30,000 over a two-year budget cycle.

This amount is over and above the amount spent on federal taxes.

Nevada is unique in that it is one of only six states to tax more at the local level than at the state level — a fact that reflects a relative decentralization of services.  Still, few taxpayers take comfort in rendering less to Caesar when Caesar has simply ordered them to send more to his brother-in-law at the provincial outpost.

Given the correct information, it is doubtful many Nevadans would be clamoring for higher taxes.

Geoffrey Lawrence is deputy policy director at the Nevada Policy Research Institute. For more visit http://npri.org. This commentary first appeared in the Reno Gazette-Journal.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.