If it’s not broken, pretend it is

Patrick Gibbons

It has once again been made very clear that the "Big Three" among Nevada's tax-hike crowd – the Las Vegas Sun, Assembly Speaker Barbara Buckley and incoming Senate Majority Leader Steven Horsford – believe that Nevada's tax revenue system is "broken."

With current revenues considerably below the projections that were used to create the 2008-09 budget, Horsford, Buckley and others have talked about an alleged need to restructure the tax code.

In the above-linked Sun article, Buckley states, "[F]or several months I've been talking about overhauling the state's financial structure."  But what that new structure would look like isn't clear – Buckley won't say. She won't even comment on whether the tax restructuring would be revenue neutral or a flat-out tax increase.

However Nevada's revenue troubles are spun, there is still no need for a "tax restructuring."  Consider:

1)   Nevada ranks 25th in the nation, precisely in the middle, in revenue collected per resident.

2)      By the end of FY 2008 Nevada was the only state in the country without corporate or personal income taxes that is also dealing with a revenue shortfall.

3)   Corporate taxes, a recurrent goal of Nevada's tax-hike crowd, are the single most volatile source of revenue for governments.

4)   The State of Arizona relies on personal and corporate income taxes, property taxes and sales taxes and it has a larger revenue shortfall than Nevada

The Silver State's revenue shortfall clearly isn't the result of an inadequate tax structure. Its shortfall results from politicians' mismanagement. Our politicians raked in over a billion dollars in higher tax revenue and proceeded to spend every dime by committing to a horde of new spending obligations. On top of that, they thoughtlessly assumed the good times would continue without let-up.

Even today, such facts don't stop Nevada's big spenders. And since they won't tell us their intentions, in what ways might they attempt to "restructure" our tax code?

Horsford states:

"When you take out what gets redistributed to the local government, the state revenue source is based 62 percent on sales and gaming. So to allege that this is a very stable source is not taking everything into account."

Since the insinuation is that the state relies too much on sales and gaming, that leaves four possible options for shoring up our imaginary tax-structure difficulties.

1)   Raise property taxes. Horsford believes local governments have experienced less difficulty than the state because they collect the bulk of Nevada's property taxes. Increasing property taxes so the state's take increases is not exactly the best plan, considering the damage it would do to our already deeply wounded housing market.

2)   Personal income tax. Would the Democratic Legislature do the unthinkable and propose taking your hard-earned money directly out of your paycheck? Unlikely, since such a course is currently barred by the state constitution. Moreover, attempts to reverse that would raise a political fire-storm.

3)   Corporate income tax. Since corporate taxes are the most volatile and unreliable source of revenue, pushing for a corporate income tax would only reveal insincerity on the part of Buckley and Horsford when they repeatedly claim their intention is to make the tax structure more "stable. " A corporate income tax would also damage Nevada's ability to grow and diversify its economy, as the state would be less attractive to businesses. Not a good solution when we desperately need to attract jobs to the state and jump-start our economy.

4)   Increase Nevada's modified business tax. This is already one of the single most perverse taxes politicians can create (second only to the gross receipts tax, which is almost insanely self-destructive for a state). Increasing the MBT, which is nothing more than a hidden income tax, only discourages businesses from creating jobs and hiring people. Considering that Nevada unemployment rates are projected to exceed 9 percent before 2010, this also is a terrible choice. The MBT is so bad that Buckley and Horsford actually should be repealing it, in order to combat Nevada's troubling jobless rate.

There is no need to wait and see what Buckley and Horsford will propose or wonder whether or not they are sincere in their desire to create a "more stable" tax base. The bottom line is that there is simply no need to restructure anything. Nevertheless, all signs suggest you'll need to be prepared to fight for your hard-earned money in 2009.