Nevada's 2003 Tax Increases
Underlying Assumptions and Resulting Impact
- Saturday, January 1, 2005
During the 2003 legislative tax debate, we pointed out in a published study that state income and expense projections issued by the Governor’s Task Force on Tax Policy were based on an unrealistically “high estimate of future revenue needs and a very pessimistic estimate of future revenue growth from existing sources.”
As is now widely recognized, events have proven these assertions to be true. The result is that tax collections today now run far ahead of Task Force estimates, while many programs are requiring less money than forecasts suggested.
This matters because the Task Force analysis was based upon repeated assertions that the additional tax funds were necessary to simply keep Nevada’s existing programs solvent. In simple terms, Nevada fiscal policy was explained as basically allowing the State to break even. Today’s growing budget surplus was never a public goal.
For responsible legislators and all parties interested in Nevada’s fiscal planning, the crucial question is: Why did the preparation of the Nevada budget fail? What methodological errors resulted in the Task Force failing so dramatically? The primary purpose of this report is to show where the critical errors in method occurred.
For example, some have asserted that the state missed its forecasts by only a “bit.” Such rationalization is, unfortunately, neither useful nor correct. Moreover, the mistakes are important, since many of the advisors who helped facilitate the 2003 tax increases continue to influence government policy.
Two examples illustrate the critical and fundamental flaws in the official analyses:
• Had the legislature held FY 2004 general fund spending to FY 2003 appropriation levels, after adjustment for inflation and population increases, the FY 2004 budget would have generated a modest surplus for the year without any tax increase!
• The official budget systematically overstated revenue needs. For example, the TANF (Temporary Assistance for Needy Families) caseload is currently 42 percent below Governor Guinn’s prediction.
So far, however, there has been no movement by the architects of the 2003 tax increases to repeal any of these levies. Left to their own devices, many policymakers are likely to discover additional “needs” that will eat up the entire surplus, soon requiring even higher taxes. To prevent more raids on the pockets of Nevada’s taxpayers, new, structural safeguards may well be necessary. A Colorado-style Taxpayer Bill of Rights is one promising approach.