Nevadans deserve honesty from IFC

Constitutionally suspect body schemes to soak taxpayers even more

By Geoffrey Lawrence
  • Thursday, September 17, 2009

Nearly three months after the funding for a proposed comprehensive study of the state tax structure was defeated by the process specified by the state Constitution, the Nevada Legislature's Interim Finance Committee went ahead and officially requested proposals for that same, exact study. 

On July 9, Governor Gibbons vetoed Senate Bill 143 which would have allocated $500,000 to fund an interim study of the revenue structure for state and local governments. Soon after, Senate Minority Leader Bill Raggio indicated that, although the governor's veto had not been overridden, he and other lawmakers would simply tap into Interim Finance Committee Contingency Funds in order to finance the study. 

In other words, legislators would use a back-door slush fund to get what they wanted, despite the fact that the appropriation had been legally defeated.

On September 1, the Interim Finance Committee made Raggio's scheme official, issuing a formal request for proposals from third-party contractors to perform the study with the extra-legal funds.

The motivations for this highly questionable maneuvering by Interim Finance Committee members becomes clear when one considers the scope of work they would like to see included in the study. This is no simple academic exercise meant to provide suggestions for "stabilizing" tax revenues.

According to the relevant Senate Concurrent Resolution, a central purpose of the proposed study is to "review proposals for broad-based taxes." There should be little confusion about what "broad-based taxes" are to be considered. Senate Majority Leader Steven Horsford, who is both an influential member of the Interim Finance Committee and an advocate for the interim tax study, sponsored legislation in the same session that would have explicitly required the imposition of a corporate net profits tax. According to the bill's language:

A corporate net profits tax or any alternative tax, such as a business transaction tax or any other alternative for the generation of revenue should be evaluated for viability and implemented only after determining the manner in which such a tax can be most effectively levied.

The bill further cites the Silver State's lack of a corporate income tax as a reason to examine that tax specifically. 

Thus, any pretense that the purpose of the Interim Finance Committee's tax study is to address volatility in the state tax structure in order to "stabilize" tax revenues should be dismissed out of hand. Numerous studies have shown the corporate income tax to be the single most volatile revenue source for state governments in the nation. According to the Federal Reserve Bank of Kansas City, the corporate income tax is more than twice as volatile as the general sales tax.  This is because corporate profits are extremely sensitive to economic recession.

The overall volatility of a state tax structure is not improved by adding a new tax that is even more volatile than the existing tax base. This is intuitive for anyone who understands averages or has a modicum of common sense. 

Suggestions from legislative leadership that Nevada must "broaden and diversify its revenue base" with new tax instruments are — if made in good faith — naïvely assuming that tax revenues operate in the same manner as personal investment portfolios. While returns on personal investments vary depending on the profitability of individual firms, and while personal wealth can be safer in a diversified portfolio of investments, all tax revenues are directly proportional to economic growth rates. Attempting to "diversify" Nevada's tax structure by creating new tax instruments would be like attempting to mitigate investment risks by doubling down one's investment in the same, original securities.

Clearly, the purpose of any study to come out of the Interim Finance Committee is simply to provide a flimsy, see-through rationale for yet another Silver State tax grab. That tax grab is being plotted against businesses and Nevadans who are already struggling. And it would inevitably exacerbate the state's growing unemployment problem — even if it enriches individual legislators and their rent-seeking constituencies.

At a time when important and powerful questions have been raised about the constitutionality of the Interim Finance Committee's very existence — questions that Raggio himself has advised lawmakers to avoid testing in court — its members should really try to muster the integrity to be honest with voters. 

Instead, they have cast aside constitutional procedures and pledged money from a legislative slush fund in order to finance a study on whose purpose they have misled voters from the beginning.

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

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