Why Nevada's cost of government is high
Delineating the tax burden
- Wednesday, December 31, 2008
While public discourse in Nevada has recently focused on whether the state should increase taxes, little attention has been paid to the high cost that Nevadans are already paying to finance state and local governments. Although the state's general fund revenues have captured the attention of the media in recent weeks due to the "imaginary shortfall," Nevadans are also burdened by many other forms of state and local taxes.
At the state level, the $6.84 billion that the governor originally planned for 2007-2009 general fund spending only accounted for 37.5 percent of the state's total planned spending of $18.24 billion. The remaining 62.5 percent was allocated for purposes outside of the general fund, such as the state highway fund, the federal fund, inter-agency transfers and a variety of other smaller funds. Several of these other accounts, such as the indigent accident fund, are what legislators raided in their most recent "special session."
Nevadans are also forced to pay a variety of local taxes that include parts of the sales tax plus several property taxes. Depending on a parcel's location, owners may be paying property taxes to multiple districts. These may include: state government, county government, municipal government, a local library district, a local school district, a police district, a fire district, 911 services, a water district, a "local improvement district" that finances a specific local project such as road construction, and/or a redevelopment district that funnels taxpayer money directly to large private real estate developers.
The burden of these state and local taxes has increased over time. According to U.S. Census Bureau data, the cost of government in Nevada increased from $6,352 per person in 1992 to $7,763 per person in 2006. This level of increase has occurred even after accounting for inflation. Thus, for a family of four, the cost of government increased from $25,408 in 1992 to $31,052 in 2006.
Big-government advocates often claim that inflation-adjusted per-capita tax revenues must remain steady if the quality of government services is to be stable. Using this rationale, some leaders in Nevada are pointing to projected decreases in general fund revenues in the upcoming biennium as a reason to again increase state taxes.
This reasoning relies on several fallacies. It presumes that government is the only enterprise in the world that cannot benefit from technological innovations, such as computer software, that make workers more productive. The USDA notes, for example, that while 41 percent of the American workforce was needed in 1900 to meet U.S. agricultural needs, a mere 1.9 percent of working Americans by 2000, thanks to technological improvements, was accomplishing that task. It's curious how little faith big-government advocates have that government bureaucrats can realize similar efficiency gains.
Greater efficiency should also be possible due to economies of scale. Realistically, the overhead costs of government operations should not increase all that much as the population grows. Government bureaucrats can continue to work in existing buildings and use existing public infrastructure. Indeed, there are many agencies - such as those in finance and administration – where an increasing population imposes little or no additional burden. Only for certain government services – such as police or fire protection – should costs increase in direct proportion to population growth. Ironically, these types of services are typically provided by local governments. Compared to local governments, the cost of state government should be relatively unrelated to population growth.
Also ignored is the fact that per-capita tax rates in Nevada have increased substantially over the past 15 years when local taxes are included. In the current political climate, officials at the state level are simply pushing to get a bigger piece of the taxpayer pie and unfairly punishing working families in Nevada.
Before considering whether higher state taxes are necessary, Nevadans should pause to consider how much they already pay for state and local government. Although officials at the state level clamor for greater general fund spending to finance things such as extravagant employee pay raises, much of this money is being wasted on such pork as maintaining a "Nevada Film Office" – an office established to underwrite state officials' pipedream of luring Hollywood to Nevada.
So long as state expenditures are devoted to pursuing pipedreams and extravagant employee raises that range up to 8.5 percent in FY2009 alone, state officials should not claim that they are entitled to a greater share of the income of Nevada families. The cost of government in Nevada has been on the rise for long enough.
Geoffrey Lawrence is fiscal policy analyst at the Nevada Policy Research Institute.