The 'Broad Based' Tax Scam

By Steven Miller
  • Monday, May 5, 2003

The campaign to impose big new taxes on working Nevadans has been notable for demonstrating a nearly infinite number of ways for trashing the truth.

Of all those cynical ploys, however, surely the most cold-blooded is the scam that tries to harness Nevada working folks’ opposition to big new taxes and use it for—what else? —imposing big new taxes on those same working folks.

Given the Culinary union’s many decades of well-documented corruption, perhaps it’s not surprising that Las Vegas Local 226 would be at the forefront of this swindle, also.

“A tax on services is not a broad-based business tax,” asserted Secretary-Treasurer D. Taylor—backed by 400 union members—before the Assembly Taxation Committee in March. “It is another tax on working Nevadans, and we feel very strongly that working Nevadans should not have to pay a penny more in taxes until you pass a broad-based business tax.”

As always, Taylor’s demagoguery is breathtaking. Most stunning of all, however, is his eagerness to totally ignore the actual nature of the “broad-based business taxes” for which he lobbies and demonstrates.

The gross receipts tax (GRT) Mr. Taylor seeks is broadly based precisely because—in the words of the world’s top expert on the nation’s broadest state tax structure—“it casts a wide net over virtually all forms of consumer activity, no matter how defined.”

Thus if the GRT gets passed into law, Culinary union members and all other working Nevadans will be paying the GRT hidden in whatever they buy, whether gas at filling station pumps or car-repair services at the local garage, whether groceries at Food4Less or haircuts at Super Cuts. The biggest problem with various service tax ideas from business groups is simply that they would raise taxes. But these proposals at least have the merit of allowing people to see the tax on their bills and choose whether they’ll buy that same good again.

The broadest state tax structure in the nation—mentioned above—is the State of Hawaii’s General Excise Tax (GET)—a gross receipts tax similar in its broad base to the GRT currently sought by the Culinary Union, the Nevada Resort Association and the Guinn administration. The foremost expert on the GET is Dr. William F. Fox, head of the Center for Business and Economic Research at the University of Tennessee, Knoxville.

Fox points out that what makes Hawaii’s GET tax the nation’s most broadly based business tax is that it is a sales tax on virtually anything that anyone might want to buy—most especially including services. Indeed, he notes, Hawaii taxes 157 services. Nevada, on the other hand, currently taxes only 11.

A vigorous advocate of the Hawaiian GET, Fox has been retained many times by the State of Hawaii to analyze consequences of the tax. In a study published last year, he explains in detail why Hawaii’s gross receipts tax is just an extremely broad and pyramiding sales tax.

Fox notes that Hawaii’s gross receipts tax (as would be Nevada’s) is written into law as a privilege tax on vendors. But that, he points out, has little to do with “the economic effects of the GET, and these are most important factors for categorizing the tax.” (Emphasis added.)

“The economic effects in terms of whose income ultimately is reduced through payment of the tax and the tax’s effects on the product’s price and quantity demanded are the same regardless of whether the tax is legally incident on the seller’s receipts or the buyer’s purchase,” writes Fox. He notes that 12 other states also levy their taxes on the “privilege of engaging in business as a vendor,” and those taxes are also recognized as sales taxes.

It is the broadness of the Hawaii tax base, says Fox, that produces the hated “pyramiding”—the taxing, multiple times, of goods and services as they move through the chain of production. Indeed, he acknowledges, the actual tax base for the GET is 156.2 percent of Hawaiians’ personal income. Now, that is broad.

Likewise, as former Tax Director Freitas explained to NPRI, Hawaii’s system is so “broad-based” that even your taxes get taxed! Buy a $100-worth of lumber, he noted, and you’ll pay not only $100 for the lumber and $4 for the tax, but also another 16 cents for the tax on the tax!

This, in essence, is what a “broad-based tax” really means.

It’s only code language for a system optimized to hit taxpayers from as many unseen directions as possible.

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

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