Dem. leadership’s tax plan would hurt Nevada’s economy, impose destructive tax instruments

Victor Joecks

Here are NPRI’s thoughts on the Democratic plan to increase taxes by around $1.2 billion and increase Nevada’s general fund spending from $6.4 billion in the current biennium to $7.1 billion in the next one.

NPRI analyst: Dem. leadership’s tax plan would hurt Nevada’s economy, impose destructive tax instruments

LAS VEGAS – In response to legislative Democrats’ proposal to increase taxes in Nevada by approximately $1.2 billion over the next two years, Geoffrey Lawrence, the deputy director of policy at the Nevada Policy Research Institute, released the following comments:

“If the goal of legislative Democrats is to cripple the long-term potential for growth in Nevada’s economy, this plan is the perfect vehicle. Their proposal to seize more wealth from private families and transfer it to highly-paid government bureaucrats signals a singular arrogance on behalf of the majority-party leadership toward hard-working Nevadans.

“Nevadans in the private sector have seen their standard of living decimated over the past three years while government workers, feeding off private workers’ productivity, continue a life of luxury about which most taxpayers can only dream. ‘Effective’ unemployment in the private sector is still approaching 24 percent, while many workers who have retained their jobs have seen dramatic reductions in wages and benefits. Yet public-sector pay – already higher than comparable private sector rates prior to the recession – has continued to increase. This is a caste system, and a direct insult to Nevada taxpayers.”

Lawrence acknowledged that no tax system is perfect and that every tax instrument imposes a unique set of distortions on economic activity. Indeed, last year, NPRI published an analysis of the Nevada tax system that evaluated various tax instruments based on the criteria of revenue volatility, economic efficiency, simplicity and tax equity.

“The Democratic leadership should be applauded for at last recognizing the destructive impacts of the modified business tax and acknowledging the need to lower Nevada’s high sales tax rate. However, these reforms need to be done in a revenue-neutral manner, along the lines outlined by NPRI in its ‘One Sound State‘ proposal. Among the key conclusions of that report was that in order to minimize the economic distortions caused by taxation, the tax burden should be kept to a minimum.

“In addition, some of the tax instruments that legislative Democrats have proposed would impose even more adverse consequences than the current tax system. The margin tax – structurally very similar to the infamous gross receipts tax Nevada policymakers rejected in 2003 – is one of the most economically distorting tax instruments available to lawmakers because it ‘pyramids’ up the supply chain. The tax is assessed at every stage of production, meaning that complex goods will be subject to the tax many times over. Not only would it discourage high-tech jobs from coming to Nevada, it will make the state seriously uncompetitive. The Democratic plan essentially shuts the door on any hope of economic diversification.

“Democratic leaders further indicated that their proposed margin tax would be ‘adaptable’ to differentiate among goods and services providers – meaning that some industries could be taxed arbitrarily at higher rates. This would open the door to a nightmare of rent-seeking at the Nevada Legislature, since those with the most lobbyists would pay the fewest taxes.

“Despite the rhetoric of the Democratic leadership, Nevada already has ample revenue to provide basic government services. Data from the US Census Bureau shows that Nevada’s per capita state and local tax collections rank near the national median, at 28th – and that was before the 2009 tax hikes took effect. However, most of this money has been spent ineffectively, resulting in a relatively poor quality of services.”

Earlier this year, NPRI’s “Better Budgeting for Better Results” policy study highlighted specific measures lawmakers can take to save more than $3.5 billion during the current budget cycle while maintaining or increasing the quality of services.

“It is irresponsible of lawmakers to speak of raising taxes on Nevada families when they have been unwilling to find billions of dollars in savings. The proposed tax increases have nothing to do with maintaining the quality of services – that can be done simply by changing the way money is spent.

“Democratic leaders have signaled an unwillingness to exact accountability over the use of public funds. If meaningful reform were enacted in the areas of K-12 and higher education, Medicaid, collective bargaining and prevailing wage laws, then the state could improve results with fewer dollars. The party leadership’s hubris in ignoring these issues – while increasing the burden on struggling Nevada families – is shameful.”

Additional information:
• Better Budgeting for Better Results study
• One Sound State, Once Again study