Hell-bent on Killing the Dream

By Doug French
  • Monday, December 30, 2002

The bank where I work recently had its holiday party. For a few of us who started with the bank at the beginning or soon after, it was an amazing sight: A couple of hundred people coming together to celebrate the holidays and another successful year of serving customers.

It all started just six and half years ago—because two guys put up $5 million in starter capital. About a dozen people were at the bank’s first holiday party; since then we’ve grown exponentially. Now a hundred employees—and their families—benefit.

That’s what capital investment does: It changes many people’s lives for the better.  

Ours is only one of many Nevada success stories. Nevada consistently is ranked among the best states in which to start a business and, in turn, create jobs. Cognetics, a Waltham, Massachusetts demographics firm, ranked Nevada first in its list of “Entrepreneurial Hot Spots: The Best Places in America to Start and Grow a Company, 2001.” Similarly, the Washington D.C.-based Small Business Survival Committee (SBSC), just named Nevada the second best place to run a small business in 2002, after picking Nevada first in 2001.

SBSC has correctly identified the enemy of small business: government. The group prepares an index identifying 20 different ways that government imposes costs on business. Fourteen of those 20 criteria involve taxes; the other six are electricity costs, worker’s compensation costs, total crime rate, whether or not there are right to work laws, the number of bureaucrats and the state’s minimum wage rate.

Employment experts agree that the primary fountainhead of jobs in America is small business. We read daily of large corporations handing out thousands of pink slips, but small business entrepreneurs continue to combine their time and talent with capital and guts—and the result is jobs. That’s why 6,000 people a month move to southern Nevada. It’s not for a government handout; it’s for the promise of a better life—which businesses satisfy with jobs.

Unfortunately, Nevada’s governor and his hand picked tax-increase panel seem hell-bent on destroying the dreams that the people of Nevada have for a better life. Despite what panel members and the governor say, it’s really people who pay taxes, not faceless corporations. It may be businesses that will collect the booty generated by the proposed Gross Receipts Tax (GRT), but it’s people who will pay it. As Keith Schwer, director of UNLV’s Center for Business and Economic Research pointed out during the center’s recent Economic Outlook 2003 conference, the people who will pay the tax will be “the [business] owners, the customers, or the employees.”

Using those boring graphs that economists use, Schwer illustrated how it was primarily small business owners and their employees who paid the luxury tax instituted by George Bush Sr. a decade ago. Bush Sr. ramped up a large luxury tax on yachts, autos, etc., mistakenly believing that the millionaires who buy those products would pay the tax.

Wrong. The millionaires decided not to buy at the higher prices. Thus it was primarily carpenters and other workingmen and women who paid the tax by losing their jobs.

In the case of a tax on gasoline—a product where demand is, in the language of economists, “inelastic” (a change in price will not significantly affect demand for the product)—Schwer’s graphs show that customers bear the brunt of the tax. Because more taxes on inelastic products like gasoline, cigarettes and alcohol are paid by low to middle income people, the gross receipts tax recommended by the governor’s panel is terribly regressive. That means it would be disproportionately borne by low-income taxpayers.

Washington state has had a GRT for almost 70 years, and it has made that state’s tax system the most regressive in the nation. UNLV statistics show that the poorest 20 percent of Washington residents pay 14 percent of their incomes to that state government—compared with the only two and one-half percent paid by the top one percent.

Nevada’s governor says he needs to take $800 million more from the people of Nevada, for state government operations. Those $800 million will cost some people a little, or a lot, of their year-end bonuses. For others, there will be no bonus check at all. And for still others there will be no holiday party to attend because they no longer have a job or their employer went under—just so state government can keep expanding.

Capital investment gloriously benefits all. But government looting makes everyone poorer.

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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