Still Plenty to Mismanage

Doug French

The hue and cry is deafening from the pro-tax politicians and pundits. They claim legislators who oppose Kenny Guinn’s temporary tax increases in the face of a certain war with Iraq are somehow “craven.” But far from being cowardly, the Gang of 63 is showing some rare good sense.

Despite the stories coming out of the administration claiming that prisoners will have to be let loose, extra-curricular school programs will have to be dropped and state workers will have to be laid off (the horror!), it turns out the state still has plenty of money to mismanage. As the Las Vegas Review-Journal reported, “state Budget Director Perry Comeaux admitted to lawmakers the state could get by until July 1 without additional revenues and still end up with a $71 million reserve and $36 million in the ‘rainy day’ fund.”

But if a war is going to have a negative effect on the local and national economies—and it will—why on earth would anyone suggest that private industry should be hit for more taxes at the same time that tourism plummets, gaming revenue drops and gas prices soar? A bonehead move like raising taxes now would be right up there with the policies of the Hoover administration before and during the Great Depression.

When America descended into the depths of the economic crisis in 1932, the federal government was running a $2 billion deficit, and Hoover (like Governor Guinn) was eager to do something about it.

“Hoover had two choices open to him,” wrote economist Murray Rothbard in America’s Great Depression. “To reduce expenditures, and thereby relieve the economy of some of the aggravated burden of government, or to increase that burden further by raising taxes. He chose the latter course.”

Politicians are always looking out for themselves and their friends in the government bureaucracies. Thus, as Rothbard wrote, “The range of tax increases was enormous: many [World War I] excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised dramatically as follows: the normal rate was increased from a range of 1½ percent-5 percent, to 4 percent-8 percent….”

Hoover also raised corporate income taxes and reduced many exemptions. A cogent critic of the Hoover program was the St. Louis Chamber of Commerce, which declared: “When governments seek to maintain the high levels of taxation they reached in good times in these days of seriously impaired income, the impending specter of higher taxes constitutes one of the chief deterrents of business recovery.”

Hoover’s wrongheaded tax increases ensured that the depression would drag on for years. Yet these are the same policies that Governor Guinn wants to force upon the people of Nevada.

In the early 1930s, when the free market was being blamed for the economy’s malaise, Hoover and America were “ready to use the State to the hilt,” notes Rothbard. “President Hoover was a bold and audacious leader” in this campaign, “acting quickly and decisively, indeed almost continuously throughout his term of office… By every ‘progressive’ tenet of our day he should have ended his term a conquering hero; instead he left America in utter and complete ruin: a ruin unprecedented in length and intensity.”

Of course the Great Depression was anything but the free market’s fault. The blame can be laid squarely, Rothbard shows, “at the doors of politicians, bureaucrats, and the mass of ‘enlightened’ economists. And in any other depression, past or future, the story will be the same.”

Governor Guinn is looking to sock it to Nevada businesses by tripling the employee head tax and choking smokers with a tripling of the tobacco tax. This is all under the guise that state government is about ready to run out of money—when it isn’t.

The war’s effect on the economy is already being felt—consumer confidence and spending are down, the dollar and the stock market are falling, commodity prices are rising and the federal deficit is soaring. Although improved, job creation in Southern Nevada is but half what it was pre-9/11. And the Federal Transportation Agency isn’t doing Nevada any favors, causing seasoned travelers to think twice before subjecting themselves to the airport security gauntlets.

For the sake of our economy and all of us, Nevada’s legislators should continue to resist Guinn’s call for immediate taxes.

Doug French is executive vice president of a Southern Nevada bank and a policy fellow for the Nevada Policy Research Institute.