Explaining how a tax increase (no matter how small) destroys jobs

Victor Joecks

Now that the 2009 Legislative Session is over and Nevada lawmakers have passed a record-setting, job-killing, billion dollar, secret tax increase, the debate has shifted to what the effect of the tax increase will be.

Regardless, the payroll tax hikes will slow business growth, said Assemblyman Ty Cobb, R-Reno. He was one a handful of Republicans who backed Gibbons in his stance against any new taxes that weren’t already approved by voters.

“I think we in the Assembly Republican Caucus estimated how much more it (tax increases) would cost businesses, and we thought it would cost 10,000 jobs (lost or not created),” he said.

Cobb said he actually heard of one Southern Nevada business laying off workers in anticipation of the payroll tax increase.

Assemblyman Richard “Tick” Segerblom, D-Las Vegas, disputed those jobs loss estimates, but didn’t argue that a very small number of firms may choose not to move to the state as a result of the increased payroll tax, which is estimated by the Las Vegas Chamber of Commerce to cost about $216 extra a year for each employee making an average salary of $40,000 at a company with a total payroll of more than $250,000.

Nevada doesn’t need those type of firms anyway, Segerblom said.

Nobody will be laid off because of the payroll tax,” he said. “We are talking about a couple hundred (dollars) more for each employee a year. Any business that doesn’t want to pay that, I don’t want in the state.” (Emphasis added)

Assemblyman Segerblom’s line of argumentation – that such a “small” tax increase won’t kill jobs – is being echoed by other advocates of increased taxes.

The evidence, though, shows that any tax increase Nevada passes this year – no matter how small – will cause jobs to be lost.

There’s the economic law of supply and demand, Speaker Buckley’s own words, a great explanation of why taxes discourage new innovations, a rap video, study after study after study, empirical evidence, and an example of how lowering taxes creates jobs.

Along with that info, consider the following analogy as well.

I’m in the Army National Guard and at least once a year, we take a Physical Training (PT) test. One part of the PT test is a two-mile run. To pass, you have to complete the run in a certain amount of time based on your age and gender. My minimum is 16 minutes and 36 seconds, so let’s use that time for this analogy.

In a Company or Platoon, there will be dozens of individuals taking the test, just like there many, many businesses in Nevada. Some soldiers will run the two miles in less than 13 minutes and get a perfect score, some soldiers are (sadly) out of shape and can’t come close to making it in the allotted time, and many soldiers are in the middle and have to push themselves very hard to make a passing time. This is similar to how some businesses are very profitable, some are obviously failing, and some are struggling but are barely meeting the standard of profitability through their hard work.

What would happen if the Company Commander told the soldiers they would have to run the two miles with a one-pound weight in their pocket? Everything else being equal, more people would fail.

Why? Adding one pound doesn’t seem like a big deal. For someone who weighs 200 pounds, that is only adding half of a percent to his or her body weight. For soldiers at either the high or low end of the spectrum, it wouldn’t change their results much. If you ran two miles in 13 minutes, you’d still pass, although with a slightly lower time. If you couldn’t make it before, you wouldn’t make it carrying an additional pound. The change in outcomes would occur among the individuals who were struggling to make it before. A soldier might have been able to run the distance in 16 minutes and 30 seconds, but with the additional handicap, he now comes in at 16 minutes and 45 seconds – a failing time.

This is the same way it is for businesses in Nevada that are now burdened with a half percent increase in the Modified Business Tax. This tax will greatly hinder businesses who are just barely profitable. If businesses aren’t profitable, they go out of business. And when businesses go out of business, people lose their jobs.

A half of a percent doesn’t sound like a lot, but to those soldiers or businesses that are working hard to meet the time or profitable standard, it can be the difference between passing and failure. Unfortunately, Nevada has chosen to increase the failure rate for its businesses and their employees.

nevada's tax increases will cause some business to fail and kill some jobs