A slap in the face

Legislature’s new taxes will exacerbate recession

By Geoffrey Lawrence
  • Monday, June 1, 2009

State lawmakers have known for a year that tax revenues were in decline. A year

For a year they have known that they would face tough choices between implementing meaningful reform to control government growth and imposing the largest tax increases ever on a populace that is already reeling from economic recession. Yet, they procrastinated and avoided those choices. 

Last week, they finally came to a hurried, last-minute decision that will force taxpayers to feed gluttonous politicians and bureaucrats before they are allowed to feed their own hungry children. Sure, lawmakers made a show of feigning concern for "the children" by claiming the new tax money would go to education. However, the insincerity behind those cries were obvious, as the Clark County School District and teacher union had already reached an agreement to take all proposed cuts out of spending on students, not unionized workers.

The $780 million batch of tax increases approved last week could not be designed more succinctly to prolong and exacerbate economic recession. At a time when Nevadans already face an unemployment rate over 10 percent, the legislature voted to double the payroll tax. This tax is a direct financial penalty that the state imposes on any private firm or individual who hires new workers or gives pay raises. 

Lawmakers further voted to increase the sales tax — imposing a direct penalty on consumers who buy the products they need in order to provide for their families. This tax hike will force consumers to make increasingly costly trade-offs between which necessities they are able to purchase. It will also cut into the revenue streams of private businesses and lead to further layoffs as employers become less able to maintain payroll.

Combined with the $230 million room-tax increase passed earlier this session, state lawmakers shattered the tax-hike record set just six years ago by increasing the tax burden by an additional $1 billion, or nearly 20 percent.

To add insult to injury, legislators were able to arrive at this decision only after casting aside ethics rules that would have prevented some pro-tax lawmakers from voting. Sen. Bill Raggio has a long history of abstaining from votes when members of his own law firm have testified and taken a strong position on a piece of legislation. Voting under such circumstances would constitute an obvious conflict of interest. In fact, Raggio has recused himself under such circumstances at least four times this very session. 

However, when it became apparent that Raggio's vote would be critical for tax hikes to pass the Senate, the leadership decided to create an immediate exemption to legislative ethics rules. Usually when public officials decide to discard ethics rules, it is so they can do something unethical.

Lawmakers clearly had options other than raising taxes. The Nevada Policy Research Institute unveiled its Freedom Budget several weeks ago as a viable, alternative state budget.  It would have funded the state's highest priorities and avoided the need for any tax increases or federal stimulus money that will bind the state to expensive commitments long into the future. 

While the Executive Branch was unable to develop a proposal that would prioritize and control spending, it did develop a proposal that would have at least avoided the need for tax increases. 

Both of these proposals fell on deaf ears at a legislature whose members are more concerned with union interests than with the interests of all Nevadans.

Lawmakers chose to use temporary tax increases and federal stimulus dollars to fatten union pockets at the expense of all others' when they could have reined in government growth instead. Because of this decision, they have created an even greater "crisis" for themselves in the next legislative session when federal stimulus dollars are unavailable.

It's likely that if those who voted to raise the tax burden in this session return in 2011, they will claim that an indefinite extension of those "temporary" tax increases would not be a tax hike at all, since Nevadans would already be paying the new taxes. It's further probable that they would use the lack of federal stimulus money as political cover to push for even greater tax increases. Indeed, if the same legislators who refused to prioritize spending and limit government growth in this session return two years from now, there is little reason to suggest that their dispositions will have changed.

Assemblywoman Kathy McClain recently referred to the legislature's propensity to perpetually raise taxes as the "death of a thousand paper cuts." It's not. Unemployed Nevadans are bleeding from the jugular while legislators are sharpening their sword, waiting for the next strike.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

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