What could have been
Nevada faces a budget shortfall because its government, once again, grew too much, too quickly. However, now that the boom is over and revenues are down, the usual suspects are once again clamoring for a "broader tax base."
In 2008, Terry Lanni, then-CEO of MGM Mirage, called for "broader" business taxes, asserting that "every large business that benefits from operating in this state … [should provide] … its fair share of funds for the state's needs." He made it clear that "fair," in his view, meant "taxes not so much on casino resorts."
A year later, the Nevada Legislature once again obliged — adding another $900 million in "broad" taxes. This was just six years after lawmakers, at the behest of then-governor Kenny Guinn, had also increased "broad" Nevada taxes by more than a billion.
It's time proponents of ever-"broader" Nevada taxes consider what, if anything, those taxes are actually accomplishing.
Unlike the private sector, government has no built-in restraints compelling it to use resources efficiently and responsibly. Unless subjected to severe political discipline, government grows continuously, consuming ever-more resources via ever-increasing taxes. Regularly, greatly increased spending only yields equivalent or even inferior results.
Consider public education's record in Nevada. In 1959, according to the federal government's National Center for Education Statistics, Nevada spent just $430 per pupil — or, in 2007 dollars, about $2,990. By 2007, Nevada was spending over $8,000 per pupil. Per-pupil expenditures increased over 160 percent — after inflation.
Incremental tax increases and "broader" taxes over the years paid for this hyperinflation in public education, but to what end? Educational achievement is not better. In some ways, it's actually worse.
To find the best use for always-scarce taxpayer resources, government needs to be constrained within clear, firm spending constraints. For example, TASC — the Tax and Spending Control ballot initiative proposed in 2006 — could have saved Nevada much of its recent grief.
Consider what would have happened had Nevada's per-pupil expenditures since 1959 risen only as fast as inflation. Silver State taxpayers would have saved over $2.1 billion just in 2007, in now-absent state and county taxes.
It would have meant no modified business tax, no bank excise tax and no real property transfer tax. It could have meant 50-percent-lower sales/use and gaming taxes — with still room to cut Nevada's notoriously high "sin taxes" another 10 percent. There would still be room to cut more than $700 million in local sales and property taxes.
Local governments collected $1.7 billion in sales taxes and another $3.4 billion in property taxes in 2007. If K-12 education per-pupil expenditures had only grown with inflation since 1959, city and county sales taxes could have been 44 percent lower — or personal and corporate property taxes could have been reduced by a combined 23 percent.
Even if K-12 per-pupil expenditures had only doubled over the last 50 years (and very few goods and commodities have doubled in price), FY 2007 could have seen dramatic tax cuts totaling $872 million.
While we can't have these big cuts today, we could ensure similar massive savings in Nevada's future.
Embracing statewide charter-school or empowerment-school programs would encourage smarter use of resources and thus savings in the long run. Competitive outsourcing of public-education landscaping, school maintenance, transportation and food services could save Nevada $36 million a year — a conservative estimate based on experiments in Michigan. The Cato Institute's "Public Education Tax Credit" program — which combines personal and corporate tuition tax credits — would not only help students attend the public or private school of their choice, but could save Nevada up to $1.3 billion in its first 10 years.
Nevada doesn't need tax-code changes targeting every business under the sun. That didn't work for California or Arizona, and it would only perpetuate the spending problem.
Nevada needs a responsible government that uses scarce resources efficiently — in order to provide residents with the best services at the lowest price.
Patrick R. Gibbons is an education policy analyst at the Nevada Policy Research Institute. This commentary first appeared in the March 2010 edition of Nevada Business.