Behind the Rationalization

What’s really behind the campaign to impose a radical new tax structure on Nevada?

That’s the question raised by all the shifting rationalizations.

First the administration told us all that the problem was “deficits”—big, looming deficits as far as the eye could see.

But if the drive for taxes is really about deficits, why has the administration kept growing the government, even though that was exhausting the state budget reserves?

And if deficits are the problem, why is the administration currently seeking to increase state spending over the next biennium by $1.1 billion, or 30 percent?

An administration genuinely concerned over the state’s real structural problems in fiscal matters would have sought at some time to deal with the largest one of all—the unconstitutional stranglehold of public employees on the state Legislature. Nevada’s current system allows tax-consuming government employees to run up big bills, with which Nevada taxpayers are then stuck.

Finally, wouldn’t any administration truly worried about deficits have long ago led a serious look into state government expenditures? Instead this administration indulged a long-running pattern in the state Legislature that blocks any sober, in-depth look at spending programs. Lawmakers did this in 1987, when authorizing the Price-Waterhouse study, and in 2001, when authorizing the Governor’s Task Force on Tax Policy.

If deficits are not the real factor behind the drive to radically change Nevada’s tax structure, what about education? We certainly hear a lot about that.

Yet if the drive for big new taxes was really about education, would not the administration, at least sometime during the last four years, have at least mentioned the real, deeply needed reforms that the state K-12 system needs? Given that 30 percent of Nevada’s “Millennium Scholars” need remedial schooling in English or math on entering college, it’s clear that state high school graduates in general are in even worse educational shape. And indeed, that’s what Nevada employers report.

Finally, if the quality of Nevada public schools were a genuine concern of this administration, would it ever have allied itself with the greatest force blocking meaningful reform of those schools—the Nevada State Education Association (NSEA) teacher union?

Since deficits and education don’t explain the campaign for a radical new Nevada tax structure, perhaps the answer lies elsewhere. With, say, the particular political agendas of the two most powerful organizations currently beating the drum for the administration’s gross receipts tax (GRT): the NSEA and the Nevada Resort Association.

Ever-higher taxes on Nevadans have been a political lodestar for the NSEA for years, a widely known fact that easily explains that union’s eagerness for the radical GRT.

But the Nevada Resort Association’s eagerness for the GRT seems counter-intuitive. You would expect the NRA to welcome more non-gaming businesses. After all, more non-gaming businesses mean more shoulders to carry the tax load. But that has not been the resort association’s response.

So what’s going on?

It’s not widely recognized, but over the last 15 years, the resort association has become increasingly hostile to the continued diversification of the Nevada economy. Twice the NRA paid the now-infamous (and defunct) Arthur Andersen accounting firm to produce “studies” opposing the growing diversification of the Nevada economy. In 1991, an Arthur Andersen paper attacked in-migration of new Nevadans; in 1998, another Andersen paper attacked in-migration of new Nevada companies—triggering a devastating counter-study from the Nevada Commission on Economic Development. And other NRA efforts have sought to halt or damage diversification.

What the evidence suggests is that the NRA wants to stop—or even reverse—non-gaming growth in Nevada’s economy. For many decades the resort association has dominated the state politically, but the growth of non-gaming business now threatens that dominance. Non-gaming businesses today pay over 80 percent of Nevada’s state and local taxes—a little-known fact usually obscured by the NRA’s constant but out-of-date claim that its taxes pay up to 50 percent of the state general fund. (The general fund itself makes up only 30 percent of the entire state budget). In these circumstances, continued NRA political control of the state is wildly anachronistic.

Resort association officials seem to have decided that this is their last, best opportunity to stop—or maybe even reverse—diversification. That would explain why they were so eager to install this particular tax-hungry governor in office. It would also explain why, out of all the different kinds of tax plans available, they just happened to prefer the GRT—the approach most optimized for driving businesses out of a state.

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