Facts and fiction about the unions tax initiative

Answers to the top questions regarding a margin tax

By Geoffrey Lawrence
  • Wednesday, June 27, 2012

Executive Summary

Among the most challenging policy decisions facing Nevada lawmakers is designing a state tax system that generates stable revenue to finance critical government operations, such as defining and protecting property rights, without imposing unnecessary distortions or damage upon the economic system.

This brief study examines a business margin tax, as proposed by the state teacher union and AFL-CIO, in the context of the broader goals of tax reform. It concludes that a margin tax would accomplish none of the major goals of tax reform, but would instead add multiple new burdens on the Silver State economy. Of significant concern is that the proposed margin tax would:

  • Penalize small businesses.
  • Penalize struggling businesses and exacerbate the instance of firm closure or bankruptcy.
  • Tax certain sectors of the economy more heavily than others.
  • Thwart economic diversification.
  • Cause a higher effective tax rate against more complex goods.
  • Violate the confidentiality of federal business tax filings.
  • Reduce the demand for labor.

A business margin tax in Texas — after which the unions' proposal is modeled — has been widely recognized as a tax-policy failure. In 2009 alone, Texas lawmakers heard more than 100 bills proposing to modify or repeal the tax.

Nevada should look to import successful policies from other states — not failing ones.

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