Commentary - November 2002

Who’s Going to Pay?

by Lyle Brennan

Nevada business owners have been anxiously monitoring the news to find out what the Governor’s Task Force on Tax Policy will recommend this month. It seems Nevadans have been convinced, after a lot of arm-twisting by everyone from the governor to the local Chambers of Commerce, that the state’s budget shortages cannot be fixed by cost-cutting measures and fiscal belt-tightening. Gov. Guinn estimates the state’s 2002-2003 budget will be $294 million in the red, partially as a result of the economic slowdown, and also because the state hasn’t been able to keep up with the services needed by a population that increased 66 percent between 1990 and 2000.

Once people started to admit that the state needs an infusion of money to solve its current problems, the usual crowd of big-government supporters saw an opportunity to jump on the bandwagon and push for increased funding for everything from education to healthcare to a host of social services. "If we’re going to raise taxes," their thinking goes, "why not get enough money to create a cradle-to-grave welfare system?" Citing its familiar battle cry of, "Save the Children!" the teacher’s union is pushing for more money for education, which will – coincidentally – pour money into its coffers and enlarge its power base.

If we do – reluctantly – admit that the budget shortfall needs to be fixed by raising taxes, who will foot the bill? Joe Average Citizen is being told that proposals to raise taxes on businesses will make Big Business "pay its fair share". Joe probably thinks, after all the media attention given to Enron and other scandals, corporate America is so bloated and greedy it has plenty of money to pay in taxes. Besides, if businesses pay, it’s putting the burden on the other guy, not on Joe and his family. Wrong, Joe. If your employer is paying more taxes on his company’s revenue (gross receipts tax), that leaves less for salaries and benefits. If you are looking for a job, it will be harder to find one if employers have to pay more taxes for each person they hire (the head tax). And when you go to buy something, you will find the price has been raised to make up for the store’s increased tax burden.

Increased taxes could have other effects as well, such as making our business climate less favorable to companies considering moving into Nevada. We don’t have a lot of incentives to offer companies that move here, and the low tax burden is the best advantage we do have. A recent newsletter from the Nevada Policy Research Institute makes a good point: The proposed tax may keep a small business from buying a new computer to help it streamline operations. For a larger business, it may mean not hiring an extra employee or two. But for a company like CitiBank, which has 2,300 employees working in its Las Vegas credit card servicing center, the $12 million to $14 million hit from Carson City may make it decide to move its operations – and those jobs – to South Dakota or some other more business-friendly state.

Lots of alternatives have been proposed, from putting a sales tax on services, to increasing property taxes, to raising the tax on gaming revenue. Did you realize that Nevada’s gaming tax rate of 6.25 percent is the lowest in the country? Other states average about 20 percent, and their casinos still manage to make money. We could also raise money by increasing the taxes on liquor and cigarettes, by changing the way we tax slot route operators or by taxing entertainment venues.

To my mind, the worst idea proposed by the Governor’s Task Force is the gross receipts tax. The key word here is "gross". This proposal would charge each Nevada business (over a certain size) .25 percent of its gross receipts. Let’s say you and I each sell $1 million worth of goods this year. We both owe $2,500 in tax. It costs me only $700,000 to generate my revenue, so I don’t mind having to pay a small tax on my $1 million. However, your company had a bad year and spent $1.1 million. You lost money and will have to dip into your savings to pay a tax on money you never even saw. How is this fair?

The recommendations from the Task Force are only the first step in designing a new tax structure, so let’s not get discouraged. The 2003 Legislature has the final say. That’s good news for us, because, as voters, we have the power to make our voices heard. There is plenty of information about the pros and cons of the various tax proposals. Take the time to look at them and figure out how they will affect your business. Then, let your state senator and assembly person know how you feel. You can find their contact information on the Web at: www.leg.state.nv.us, or in your phone book. Also, let them know you don’t want more money taken out of your pocket than is needed to fund a reasonable amount of government services. If you belong to a business group like the Chamber of Commerce or a trade association, band together with other members and make sure legislators know your position. Ask questions, and make sure you get answers that satisfy you.

Lyle Brennan Publisher
COMMENTS? email: lyle@nbj.com