Taxes & Government Spending

The good, the bad and the ugly: Part II

Geoffrey Lawrence

Bills still alive this week in Nevada’s 2013 legislative session include many forward-thinking, market-oriented policy solutions.

Then, of course, there is the usual passel of short-sighted schemes for government intrusions into the marketplace.

Some of the bills would improve the lives of Nevada’s citizens, while others would reduce living standards for the bulk of citizens while benefitting only select interest groups — or no one at all.

This report reviews the good, bad and ugly proposals among the bills still alive.

The Good:

SB 445 (Gov. Brian Sandoval) would finally allow some K-12 students in Nevada to escape failing government-run schools and attend better, privately run ones. Nevada businesses would receive credits against their Modified Business Tax liability for donations made to federally qualified 501(c)3 nonprofit scholarship organizations. Scholarships from those organizations —paying for private-school tuition or other qualifying educational expenses — would be awarded to students of families with income no higher than 300 percent of the federal poverty level.

The bill is not perfect, however. First, it is very limited in scope — no more than $5 million in tax credits are permitted annually. Second, it threatens to place stringent new regulations on families who opt to homeschool their children. Third, it gives extraordinary leeway to the Department of Taxation to determine how tax credits will be awarded as well as the value of potential scholarships. Nevertheless, if these shortcomings are addressed, SB 445 would offer hope to families who cannot afford school choice on their own.

SB 311 (Sen. Aaron Ford) would allow parents to reorganize failing public schools if at least 55 percent of parents whose students are enrolled in the school submit a petition to their local school board requesting such a change. Initially, parents would only be permitted to reorganize the school into an Empowerment School. If, however, after three years, the school continues to be classified as “underperforming,” parents may submit a second petition to convert it into a charter school. While it is disappointing that parents who desire immediate conversion to a charter school would be required to go through the petition process twice and watch their children languish for three years, this “parent trigger” option is at least an improvement over the status quo. SB 311 passed the Senate unanimously.

AB 227 (Assemblyman John Ellison et al.) would establish a Nevada Land Management Task Force to draft a strategic plan for state management of public lands. Many Western states are currently considering similar legislation. The strategic plan would establish a roadmap for the transfer of public lands from federal to state control. It would designate some areas as “wilderness” areas to be protected and held in perpetuity and would allow others to be sold or leased for private development. Federal ownership of more than 80 percent of Nevada’s lands is a substantial obstacle to the state’s growth and violates the state’s constitutional Equal Footing rights. AB 227 passed the Assembly on a 23 to 18 vote.

The Bad:

IP 1: The teacher union and AFL-CIO petitioned the Legislature to impose a “business margin tax” — easily the most destructive tax idea before lawmakers this year. Texas is the only state that imposes a margin tax — albeit at half the rate proposed for Nevada — and lawmakers there have been working hard to abolish it. The margin tax has been widely recognized as a failure in tax policy due to its complexity, the fact that it taxes even money-losing firms and that it distorts economic activity in damaging ways.

Lawmakers elected not to vote on the margin tax proposal within the first 40 days of session. As a result, the proposal will automatically appear on the 2014 ballot, where it could become law with a simple majority vote.

AB 26 (NV League of Cities and Municipalities) would lower the allowable rate of home depreciation, for tax purposes, from 1.5 percent to 1.0 percent annually. Nevada is the only state to use a bifurcated property-tax system — one of the most complicated in the nation — that assesses the value of land separately from the value of improvements on that land. Improvements are assessed according to an arbitrary annual depreciation schedule. Under current law, an improvement, such as a home, reaches the maximum rate of depreciation after 50 years. AB 26 would extend that period to 75 years and increase a property owner’s annual tax bill for each of those 75 years.

AB 201 (Assemblyman Skip Daly) is another tax-hike-by-accounting-gimmick proposal. The bill would raise a homeowner’s annual property-tax bill by increasing the calculation of “assessed valuation” from 35 to 45 percent of a parcel’s “taxable value.” Taxable value is the sum value of the land plus the depreciated value of any improvements on the land. This figure is then multiplied by 0.35 to determine “assessed valuation” and property-tax rates are applied against the “assessed valuation” figure. AB 201 would increase this multiple by 1 percent in each year until 2023, when the multiple would reach 0.45. As a result, the average property tax bill would rise by 28.6 percent.

The Really Ugly:

SB 165 (Sen. Aaron Ford et al.) would establish a transferable film tax credit as an “economic development” incentive. While targeted tax incentives generally are a flawed strategy for economic development, the film-tax credits proposed by SB 165 are especially problematic. That’s because they offer film producers a larger credit than they would actually owe in taxes. Producers could receive as much as 28 percent of their total filming costs through these credits — far in excess of their state tax liability. In other words, it would be a direct cash payment from taxpayers to wealthy film producers. A similar program exists in Louisiana, where non-partisan legislative staff concluded that its net fiscal effect was an annual loss of the state budget of more than $48 million in every year between 2006 and 2011.

Additional bills of the good, bad and ugly varieties will be reviewed in next week’s installment of this series.

Geoffrey Lawrence is deputy policy director at the Nevada Policy Research Institute. For more visit http://npri.org.

Read more:

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.