On the Backs of the Poor

By Steven Miller
  • Monday, March 10, 2003

In January Governor Guinn declared that he “refuses to balance the budget on the backs” of Nevada’s poor.

But according to a prestigious new study from Washington, D.C., it is precisely Nevada’s poor who would suffer most from the governor’s primary budget revenue proposal—the gross receipts tax.

The Institute on Taxation and Economic Policy (ITEP) is a 23-year-old research and education organization that focuses on government tax policies. It boasts one of the nation’s only computer models built to determine how any particular state tax program affects taxpayers at different income levels.

ITEP released its new study—“Who Pays? A Distributional Analysis of the Tax Systems in All 50 States”—on January 7, about two weeks before Guinn made his dramatic declaration. The institute’s study focused on the most regressive state and local tax systems and the factors that make them so. Heading the list was Washington state—the “Business and Occupation” tax of which was the model for the Guinn administration’s gross receipts tax proposal.

According to the ITEP study, the poorest 20 percent of Washingtonians lose 17.6 percent of their income to state and local taxes. In Nevada, by contrast, the poorest 20 percent lose less than half of that—8.3 percent—to state and local government.

A significant factor in the regressivity of the Washington state tax burden is the gross receipts tax, according to ITEP research. State and local sales and excise taxes suck up 13.8 percent of the poorest Washington residents’ income. The largest of the excise taxes is the state’s gross receipts tax. Indeed, sales and excise taxes supposedly “on business” actually cost the poorest Washingtonians 4.8 percent of their annual incomes, according to the study.

But this is not the only damage that the study inflicts on the campaign to impose a gross receipts tax on Nevadans. When it identified the 10 states in America that impose the highest proportional taxes on the poor, all three of the gross-receipts-tax states made the list.

Washington state—with not only a broad gross receipts tax but also a 6.5 percent sales tax—led the roll. Sixth in the ranking was Hawaii, which has a 4.17 percent gross “excise” tax and a 10 percent income tax. Tenth was New Mexico, with its 6.4 percent gross receipts tax, a 5 percent sales tax, an income tax and property taxes.

Ideologically, the Institute on Taxation and Economic Policy is positioned toward the left end of the political spectrum, and labors doggedly for “progressive taxation”—i.e., more and higher income taxes rather than sales and excise taxes that primarily impact consumption. Board members for ITEP include Robert Kuttner, founder and co-editor of the leftist magazine The American Prospect; Robert Reich, secretary of labor in the Clinton administration, and Dean Tipps, secretary-treasurer of the California state Service Employees International Union.

Nevertheless, ITEP’s “microsimulation model” on state taxes adds force to findings published by the Nevada Policy Research Institute earlier this year. An NPRI study, “The Destructive Impact of a Gross Receipts Tax,” explicitly argued that a gross receipts tax in the Silver State would operate like a stealth income tax on average Nevadans. (See www.npri.org.) What the ITEP report shows further is that this “stealth income tax” sought by the Guinn administration would disproportionately hit Nevada’s poorest citizens.

To blunt growing criticisms of its gross receipt tax proposal, the Guinn administration has adopted arguments crafted by the Nevada Resort Association—the primary peddler of the scheme. Guinn’s chief lobbyist, Michael Hillerby, contends that the regressive and stealth “pyramiding” effect of the receipts tax would not be significant in Nevada because the state currently lacks extensive manufacturing.

The argument is breathtaking, because it effectively endorses the NRA drive to block further diversification of the Nevada economy. But it is also quite suspect. Simulations utilizing the nation’s foremost regional economic model—REMI Policy Insight, in Amherst, Mass.—indicate that the effect on average Nevadans of the proposed gross receipts tax would be equivalent to a 2 percent increase in the state sales tax. REMI is the most respected economic modeling program in America and is utilized by a vast majority of state governments, numerous federal agencies, consulting firms, nonprofit institutions, universities and public utilities.

The profoundly regressive character of the administration’s tax proposals—the gross receipts tax, the $300 anti-employment head tax and the massive increase sought in tobacco taxes—is clear. What is not clear is: Why the deafening silence from the leaders of the Democratic state assembly?

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

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