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Opinion: Visions of tax increases


By Geoffrey Lawrence, Nevada Policy Research Institute

It finally happened.

The ongoing charade that is the Nevada Vision Stakeholder Group finally showed its true colors.

From the beginning, it has been apparent that the purpose of the stakeholder group and the associated tax study is to provide political cover for unprecedented tax increases during the 2011 legislative session. Indeed, as group member Denise Tanata Ashby of the University of Nevada, Las Vegas indicated before the group’s work even began: “We are all taxpayers ourselves. But at some point, everybody has to contribute if we want that vision of Nevada that we have.”

The legislative Interim Finance Committee engineered this process, instructing the stakeholder group to develop ideas for new state spending and requiring its consultant for the associated tax study, Moody’s Analytics, to incorporate those new spending ideas into its recommendations for “revenue reform.” Interim Finance Committee Chair Steven Horsford set the stage for the 2011 session by placing this charade by Moody’s and the group of “stakeholder” tax consumers at the center. “Revenue reform is at the top of the agenda for 2011,” he said. “It is THE agenda.”

Last week, the stakeholder group finally began to unveil its “vision” for “revenue reform.” Unsurprisingly, the discussion focused on what new taxes could be implemented in Nevada—ranging from “broad-based business taxes” to personal income taxes.

Key obstacles highlighted by group members are the various provisions in the state constitution that offer protection to taxpayers. According to Robert Potter of the American Federation of State, County & Municipal Employees (AFSCME), “The number one problem for us is the two-thirds rule for tax increases. … We need to have the ability to adjust taxes.” Potter was referring to the constitution’s requirement that tax increases going through the Nevada Legislature get two-thirds majorities in both houses.

In 2009, that requirement gave Senate Republicans the leverage to stop tax increases—forcing the Democratic leadership under Senator Horsford to concede to, among other things, modest pension reform. That compromise was not welcomed by public-sector unions such as AFSCME, which regularly lobbies instead for larger tax hikes with no accompanying spending reforms.

Potter also described as a “problem” the Nevada Constitution’s prohibition on personal income taxes. However, to the obvious consternation of many group members, the facilitator from Moody’s Analytics rightfully pointed out that income tax revenues are generally more volatile than sales tax revenues.

Indeed, the Federal Reserve Bank of Kansas City recently showed that, on a nationwide average, state personal income taxes are more than twice as volatile as state sales taxes. The reason is simple: As personal income falls, not only does the tax base begin to shrink but, under a progressive income tax, individuals are also assessed at lower tax rates as they fall from one income bracket to the next.

This point is paramount in assessing the recommendations that will ultimately come out of the Interim Finance Committee, because its leaders have consistently maintained that the state tax structure is “fundamentally broken” and suffers from unique volatility problems. Thus, if committee members end up recommending new tax instruments that have been quantitatively demonstrated to be even more volatile than the state’s existing taxes—such as taxes on personal or corporate income—they will undercut their own rationale for “revenue reform.” Indeed, it will become clear that the purpose of their recommendations is simply to acquire additional tax revenue and not to address any volatility concerns.

The gaggle of tax eaters assembled by Interim Finance Committee members to provide political cover for these new tax proposals will mean little once the IFC exposes the hypocrisy behind its own claims. The clear purpose of the Nevada Vision Stakeholder Group is to erode the strength of taxpayer protections while the current legislative leadership works to impose new taxes that are demonstrably more volatile than all of Nevada’s existing tax instruments.

Disingenuousness abounds. It is cloaked in the rosy rhetoric of “visions” and “reform,” but it promises the shackles of rising unemployment and greater tax burdens—at least for those of us who don’t belong to AFSCME.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. For more visit npri.org.

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