All over Nevada this month, businesspeople have been suddenly turning pale.
The reason? They’ve just learned—from their accountants or their own calculations—how deeply into the entrails of the companies they lead the new state payroll tax is going to carve.
That damage—front and center now that checks are going to the state tax department—is turning out to be much worse than many businesspeople ever anticipated.
Accustomed to the old $25-per-person-per-quarter head tax and long benumbed to “politics,” they’re aghast to learn the real-world consequences of a 2003 Nevada Legislature led by tax-eating government employees and their Nevada Resort Association allies.
At firms staffed by significant numbers of professionals, the state’s tax on employment has increased on average—a quick and informal survey indicates—by around 500 percent. That was the figure given the Institute by a major statewide law firm; the same figure also came from a regional information-technology consulting company.
But the hit can be much harder, also. At a small Las Vegas medical office with only two employees—a doctor and his assistant—the bill for the October-December quarter jumped from $50 to $864—an increase of 1,628 percent.
Thus, for many young professionals the state’s so-called “modified business tax” is going to be—as long as it remains law—a significant depressant on their financial futures. Already many firms are reconsidering generous compensation packages that they previously offered employees.
Indeed, to some degree, the impact will be negative for every employee in the state—regardless of pay level. While the payroll tax’s absolute cost per employee will be less at more modest pay levels, the jobs of those same workers are more likely to be replaced by new technologies. And that’s a process this stiff new tax will encourage.
Moreover, it’s now widely recognized that the payroll tax legislation from legislative leaders was so shoddy that it necessitated the Nevada Tax Commission writing key tax regulations without a basis in statutory law. On its face, the badly written Senate Bill 8 would have required every business that extends credit—retail stores, casinos, doctors, lawyers, etc.—to be classified as a “financial institution” compelled to pay almost three times as much per employee as reported above.
Given the politically lethal consequences of that—and the public relations nightmare for legislative leaders and the governor that yet a third, corrective, special legislative session would entail—the Tax Commission and anxious legislators had to turn to Legislative Counsel Bureau lawyers for interpretive rationales to dispose of some of the legislation’s worst bugs. Consequently, Carson City’s political insiders appear to be in deeper disrepute than in over a decade.
The last election when Nevada lawmakers were the target of an intense, “throw-the-bums-out” grassroots groundswell was 1990, but polls increasingly suggest that 2004 could well be another. In that earlier vote, 16 incumbent lawmakers—36 percent of those seeking reelection—lost their seats. A year and a half earlier, during the 1989 session, big majorities in both the Assembly and Senate had voted to increase their own pensions by 300 percent. Five months later—after learning that voters remained intensely disapproving—lawmakers pled with the governor to call a special session, at which, when he did, they all unanimously reversed course. By then, however, it was too late.
This go-around, the incumbent politicians who fought tooth and nail last year to impose heavy new taxes on Nevadans are facing a truly daunting set of hazards.
Not only is there widespread popular disagreement with the actions last summer of the Legislature, the governor and the Supreme Court, but much more:
§ An increasingly widespread recognition of a corrupt relationship between city, county, university and school district administrations and the public-employee lawmakers on their payrolls;
§ A growing public understanding that the 2003 tax increases were sold to a trusting public through the use of intentionally skewed estimates of future state revenues and expenses;
§ An increasingly widespread recognition that the main rationale for the tax increases—the educational needs of the Silver State’s K-12 children—actually had very little to do with the huge size of the tax increases passed by the 2003 Nevada Legislature.
Most serious of all for incumbents, however, is the fact that they didn’t merely offend the moral sensibilities of voters, like the malefactors of 1989.
This crop of state lawmakers has substantially injured hundreds of thousands of intelligent business people and employees who understand what happened—and aren’t about to take it.
Steven Miller is policy director for the Nevada Policy Research Institute.