New taxes, same old tune

Reasons for more taxes fall flat.

By Patrick R. Gibbons
  • Thursday, August 21, 2008

Jon Ralston recently joined the chorus of politicians and pundits calling for a "restructuring" of Nevada's tax code, which, in plain language, means "raising taxes."

The chorus, which also includes Assembly Speaker Barbara Buckley (D-Las Vegas), Steve Wynn and Nevada System of Higher Education Chancellor Jim Rogers, claims that Nevada's reliance on gaming and sales taxes means unsustainable revenues that undercut the state's ability to provide for the needs of the people.

Newspapers have bemoaned proposed budget cuts, claiming they "cut to the bone" or that necessary services are now becoming luxuries.

The chorus relies on two bogus refrains:  that Nevada's tax-structure instability led to our current budget crisis, and that we need tax revenues that keep up with the booming population of our state so that government can continue to provide basic services.

But the arguments for a restructuring of the tax code are fallacious and wrong at every turn. Based on figures from the Nevada State Demographers Office, State Controller's Office and the revised figures from the Nevada Economic Forum, here are the facts:

Nevada's general fund revenue more than keeps up with the state's rapid population growth; from 1997-2007, inflation-adjusted general fund revenue per capita increased by 18.3 percent. That means state revenues were up 18 percent per person since 1997.

During that same time period, overall inflation-adjusted spending in Nevada increased by 72 percent, while overall spending per capita grew 18 percent, versus just a 9.7 percent average growth in personal income.  That means Nevada's government grew nearly twice as fast as Nevadans were able to grow their own incomes. Simply put, Nevada's budgetary shortfall occurred because government spending was kept at unsustainably high levels.

Even well into our economic downturn, Nevada's general fund revenues per capita exceed any year in the decade before the 2003 tax hike. Assuming a population of 2.82 million in July of 2008 (that is assuming a very generous 4 percent population growth since 2007) and adjusting the Economic Forum's revised FY 2008 general fund revenue to 2007 dollars (down to $2.7 billion) Nevada still collects 4.8 percent more per person than in 1997.

If Nevada really is cutting the budget to the bone and turning necessary programs into luxuries, life must have been truly miserable back in the dark ages of 1997.  Even the dismal projections for FY 2009 leave Nevada better off than in 2002, the lowest point for revenue per capita in the last 14 years.

The facts are stubborn, but the chorus for big spending sings on.  A restructured tax code that includes more "stable" sources of revenue, such as personal and corporate income taxes, the chorus wails, will keep the state from suffering large budgetary shortfalls again. Sadly, we heard that same song before with the tax hikes in 2003.

Nevada is the only state without a personal and corporate income tax that also has a massive budgetary deficit. Lacking a diverse tax base didn't stop South Dakota, Texas, Washington or Wyoming from creating more responsible and predictable budgets. However, a more diversified revenue base that includes sales, personal income, corporate income and property taxes didn't stop Arizona from creating an even larger budgetary deficit than Nevada.

While Nevada and Arizona have different tax structures, their spending habits are identical. During the boom times, both states proceeded to spend hastily and without concern, faster than population growth plus inflation and quite a bit higher than residents' personal income was growing. Nevada and Arizona are in similar predicaments today precisely because their state legislatures proved themselves incapable of responsible fiscal leadership. Restructuring the tax code won't change this fact.

For a spendthrift state like Nevada, restructuring the tax code is like holding AA meetings at a bar during happy hour. Taxpayers will be left with the bill and just waiting for the next crash.  If Nevada wishes to avoid fiscal disasters, the state needs to limit the growth of government spending to keep it from growing out of control again.

By continuing to ignore the facts, the tax chorus proves its insincerity on the issue of the state's budgetary problems – as well as its complete disregard for Nevada's taxpayers.

Patrick R. Gibbons is a researcher with the Nevada Policy Research Institute.


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