Getting Plucked in Nevada

Executive Summary


You'd never know it from the incessant calls for new taxes on Nevadans, but Silver State residents already pay some of the highest taxes in the nation.

Recently the Tax Foundation in Washington, D.C., reported the percentage of income taken by local, state and federal taxes from individuals in different states. Nevadans bore the fifth-highest burden in the nation, with only residents of Connecticut, New York, New Jersey and the District of Columbia paying more.

Some of the explanation is relatively benign. When an economy does well, as Nevada's has, it produces a larger proportion of successful people who end up paying federal income taxes at the higher rates. In such a healthy economy, even average-income people pay more income taxes, because many more of them are working and earning. So all this helps skew Nevadans' federal share upward, raising the total reported burden.

But that's only part of the story. Nevadans also carry substantially bigger tax burdens at state and local levels than the state's official figures – or the state's zealots for ever higher taxes – would have you believe.

In the last generation, stealth tactics by Nevada's politicians and its government employee unions quietly drove up Nevada's state and local taxes by over 17 percent. In 1980, Nevadans' state and local tax burden as a percentage of income was 8.6 percent. By this year it had risen to 10.1 percent – an increase overall of 17.44 percent.

The assault on Nevada taxpayers is unrelenting. In the 1980s and 1990s Nevada taxes – including the taxes called "fees" – grew at rates exceeding those in all other states. Then, in the first years of this new century, the increase of Nevada's per capita tax burden exceeded that of every state but one – New Jersey.

So how does this data square with the conventional wisdom – that Nevada is one of the lowest-tax states in the entire country?

First, it is true that Nevada remains one of the better states in terms of state and local taxes. Although the situation of taxpayers across the nation continues to deteriorate, Nevada's situation, though deteriorating, has not yet caught up to some of the worst states.

Second, the conventional wisdom, in many respects, is simply not accurate. Evaluating organizations (business magazines, for example) often believe they must defer to the self-protective labels that state and local politicians choose to place on revenue measures. In virtually every state, for example, politicians prefer to designate revenue-raising measures as "fees," rather than taxes – when even traditional definitions would say those "fees" indeed are taxes. "Taxes" get voters' hackles up and cause re-election problems for politicians. "Fees," on the other hand, usually still get the benefit of the doubt from most voters. This particular ambiguity is one that Nevada politicians were some of the first to exploit and have continued to exploit for over a generation.

A third answer to the question lies with economic myths that Nevada politicians harness and encourage. These misconceptions – facilitated by the minimal economic knowledge of media professionals and the electorate at large – have great utility in the pursuit of bad public policy. They allow politicians to dodge voter retribution for law that advantages politicians' special-interest allies but otherwise disadvantages citizens in general. Certain government agencies also have a vested interest in these myths and also use taxpayer resources to foster them.

One such myth rampant in Nevada presumes that taxes on "business" somehow fall only on business owners – not on employees and their families, and not on individuals employed out in the wider state economy. The fact is, however, that a major difference exists between who legally bears responsibility for paying a tax and who ends up bearing its cumulative economic burden. And almost always the latter extends incalculably further out into the economy than merely the supposedly targeted businesses.

Because the extent of this latter impact – what certain schools of economists call the "incidence" of a tax – is ultimately infinite, organizations attempting to "quantify" state business climates usually end up taking the path of least resistance and adopting the bare-bones criteria inherent in statutory labels.

This issue of tax incidence highlights another myth that Nevada politicians have long cultivated. Time and again over the years they've assured voters that those latest tax increases imposed by the Legislature won't really be paid by Nevadans but instead primarily by out-of-state tourists. The implication is that this is "free money" for the state, there for the taking. The truth, of course, is that nothing is free.

First, all states play this tax-shifting game. Yes, some of the Silver State's hotel taxes, rental car taxes and other tourism-related taxes – after roughing-up those particular industries and their local trading partners here in Nevada – get "exported" back to the home states of tourists. However, the same ploy is being practiced in those other states. Alaska's hefty severance tax on local oil production, for example, means, in the view of the Tax Foundation, that, "the economic incidence of these taxes falls on individuals across the country when they fill up their gas tanks or heat their homes, not to mention employees of the companies and the companies' shareholders."

Second, although conventional opinion has long asserted that Nevada taxpayers get to offload most of their taxes onto residents of other states, recent research disputes that opinion. Rather, it argues, the state is a net tax importer and in the normal course of events, we Nevadans actually end up shouldering a marginally greater sum of taxes payable to other states than we receive from them.

What is the net result of all this tax-exporting artful dodgery? Simply that everyone's taxes, all around the country, keep going up, and the net deadweight loss to the larger community and economy grows ever larger. In essence, the "tax the out-of-state folks" ploy functions as a de facto conspiracy between different states' politicians: "We'll tax your folks and you tax ours and all of us in the political class will make out like bandits, gathering ever-greater tax loot with its commensurately greater personal power for us."

Though no such organized conspiracy exists (at least, as of last report), most people in government today share assumptions that produce the same effect. Central among those assumptions – and most problematic in the long run for American society at large – is one widespread premise: that virtually all human problems can be solved, or at least ameliorated, by new and improved applications of the state's legal monopoly on lethal force.

Download file Download the full study

Steven Miller

Senior Vice President, Nevada Journal Managing Editor

Steven Miller is Nevada Journal Managing Editor, Emeritus, and has been with the Institute since 1997.

Steven graduated cum laude with a B.A. in Philosophy from Claremont Men’s College (now Claremont McKenna). Before joining NPRI, Steven worked as a news reporter in California and Nevada, and a political cartoonist in Nevada, Hawaii and North Carolina. For 10 years he ran a successful commercial illustration studio in New York City, then for five years worked at First Boston Credit Suisse in New York as a technical analyst. After returning to Nevada in 1991, Steven worked as an investigative reporter before joining NPRI.