Official Claptrap

By Steven Miller
  • Monday, January 12, 2004

When professional analysts and serious academics observe that an alleged research project “does not follow any recognized methodology,” it’s usually the polite way of saying: “Uh-oh—there’s a good chance this is claptrap!”

On the other hand, when such an assertion is made in the course of a heated political struggle—like Nevada’s 2003 tax fight—the assessment itself is liable to be discounted. “Just more propaganda,” people on the other side will hasten to say. And that, indeed, was how many advocates of higher Nevada taxes last March quickly greeted—and dismissed—two studies prepared by nationally respected analysts associated with the Demographic Solutions, Inc. firm (DSI).

Examining Governor Kenny Guinn’s proposed 2003-2005 budget, plus supporting rationalizations crafted by the Governor’s Task Force on Tax Policy, the DSI analysts had found the key assumptions being used to justify the huge tax hikes to be severely wanting.

In reviews prepared for two different business groups—the National Association of Industrial and Office Properties (NAIOP) and the Reno-based Citizens for Prosperity & Responsibility (CPR)—DSI experts pointed out that “many of the revenue projections in the proposed budget are not transparent, do not follow any recognized methodology, and are inconsistent with Federal data and other empirical information.” Then they went on to clearly and meticulously demonstrate how egregiously the state administration and its front-running task force had skewed their portrait of Nevada’s situation by intentionally over-exaggerating future state needs and drastically minimizing future probable revenues.

At which point, of course, the Governor and legislative leaders quickly swept the DSI analyses under the rug and went back to leaning on lawmakers to put the big-time squeeze on Nevada taxpayers.

However, there’s an interesting point about research methodologies: ultimately they’re part of what makes science objective. And that’s why researchers worry about “recognized methodologies.” They want—as in all empirical science—a repeatable process that will turn out high-quality data and sound understanding regardless of who applies the method.

In other words, reality is real. It is not a matter of opinion—which is the whole reason, of course, that science works. The facts remain facts, and they can even get reported—as occurred on Christmas Day, in the Las Vegas Review-Journal business section:

“Spending by Nevada consumers and tourists greatly exceeded officials' expectations for the first four months of the fiscal year, with sales tax revenue growth more than doubling what was projected for the budget.

“When the Legislature voted this summer to raise taxes and state spending to record levels, sales tax revenues were projected to grow by 5.1 percent. From the July 1 start of the fiscal year through October, revenues are up 11.3 percent and total $246.9 million.”

The 5.1 percent estimate had come from the Economic Forum—a panel appointed by top state politicians that gets its analyses primarily from state-government economists. Some of the latter appear to have also relied on numbers from the Governor’s Task Force on Tax Policy—which had projected average annual revenue growth for the 10 years beginning in 2001 at a mere 3.9 percent. That particular forecast, noted the DSI analysts, was “By any historical standard … extremely pessimistic…. The compound annual increase in General Fund revenue between 1989 and 2001 was 7.3 percent, and for State revenue as a whole it was 8.4 percent.” Moreover, the 1989-2001 decade had been marked by two recessions and the first Gulf War—hardly a perfect economic environment. For their part, the private DSI economists suggested a reasonable annual growth rate to expect would be 6.5 percent—a forecast that turned out highly accurate for the 2002-2003 fiscal year, which state statisticians say came in higher by 6.25 percent. Of course, even the DSI forecasts were too conservative to predict the rate at which revenues are currently flooding into state coffers.

Thus, what is becoming more obvious every day is that the largest tax increase in Nevada history was sold to legislators—and rammed down the throats of outraged taxpayers—on the basis of bad numbers.

Ten years ago wishful thinking by the Bob Miller administration—wearing its forecasting hat—led to a revenue crisis and the subsequent creation of the Economic Forum. But this year, too, the desire of the governor and top legislators to change Nevada’s tax structure was so intense that they all chose to use numbers supported by “no recognized methodology.”

In short, the revenue-forecasting process in use today in Nevada state government remains as politically skewed as ever.

Steven Miller is policy director for the Nevada Policy Research Institute.

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