Among the many important factors that entrepreneurs consider when determining where to best invest capital and create jobs is the degree of instability or political risk that characterizes a region.
Investors want to know that their assets will be safe over the longer term and that their property rights will be protected. This means that political leaders who are dedicated to ensuring the rule of law and can create a stable and predictable economic context can foster inward investment and job growth.
Unfortunately, Nevada's leaders have, in recent decades, sabotaged the type of predictability that investors need. Egregious tax-and-spend cycles have meant unsustainable increases in government spending during boom periods and repeated tax increases during recessionary periods — increasing the ever-growing incursion of government into our lives.
Following the infamous 2003 tax-hike package, state tax revenues increased by 31.7 percent in fiscal year 2004. Lawmakers quickly seized upon this revenue growth, increasing expenditures 51.3 percent during the 2005-07 biennium. The spending binge recklessly embraced heavy new ongoing liabilities of decidedly dubious merit. Examples include the unproductive yet costly expansions of class-size reduction and full-day kindergarten and use of General Fund dollars for the Millennium Scholarship Fund.
When economic recession inevitably returned to the Silver State in fiscal year 2008, lawmakers doubled down on their bad policies. To support the new spending they had irresponsibly embarked upon, they increased the state tax burden 19.1 percent during the 2009 regular session.
Today, some lawmakers are plotting once again to shatter the old tax hike records when they return to Carson City next year. The legislative Interim Finance Committee has commissioned a study from Moody's Analytics that must "review proposals for broad-based taxes," such as one on corporate incomes.
As lawmakers irrationally seek to "diversify the economy" by levying taxes on new forms of economic behavior, they give the Silver State a bad name. Their transparent lack of fiscal responsibility — constantly driving for massive tax increases, then spending irresponsibly — repels potential investors and casts Nevada as an unsavory investment destination.
Once upon a time, Nevada was seen as a rock of fiscal stability in the midst of a turbulent sea. During the 1930s, Nevada was marketed to the world as "One Sound State" where there was "no income tax, no inheritance tax, no sales tax, no tax on intangibles, but with a balanced budget and a surplus."
The Nevada Policy Research Institute recently unveiled a plan that would allow the Silver State to become "One Sound State, Once Again." Among other things, this comprehensive package of complementary reforms would increase equity and efficiency, while controlling the growth in government spending. It would also remove Nevada's most volatile tax, the so-called "modified business tax" — which, ironically, resulted from the 2003 legislature's professed effort to deal with its "tax volatility" concerns.
NPRI's plan would reduce the statewide sales tax rate to 3.5 percent while extending that tax's purview to all goods and services. In addition to eliminating the modified business tax's covert tax on Nevadans' incomes — forbidden by the state constitution — it would remove insurance premium taxes, implement transparent, priority-based budgeting and limit growth in government spending to the rate of population growth plus inflation.
The plan is available on NPRI's website at npri.org. If enough lawmakers have the courage to stand up for Nevadans and create an environment that will truly allow our citizens to go back to work, then Nevada can be One Sound State, Once Again.
Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. For more visit http://npri.org/.