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Nevada Tax Debacleby
John Berthoud Aug 3, 2003 Martians have landed in Nevada. Really.
State legislators and the Republican Governor just enacted the largest tax
increase in the state's history, but the Democratic leader of the Assembly
swears that the tax burden won't fall on humans. "The taxes we passed will
not go to the individual," opined Assembly Majority Leader Barbara Buckley
of Nevada.
If Martians have indeed landed in Nevada, perhaps they will indeed foot
the astonishing $836 million tax increase that Ms. Buckley and her cohorts
engineered. But short of an alien invasion, the tax hike will have a devastating
effect on the people who will have to pay the cost of these levies.
The centerpiece of the plan is a payroll tax on workers' gross wages. The
rate for all businesses will be 0.7 percent, except for banks, which will
have to fork over 2 percent. Employees will probably bear the brunt of this
tax and will see wages lower than they otherwise would be. But certainly some
of the burden will be borne by employers who won't be able to hire as many
people as they'd perhaps planned.
Lawmakers dumped even higher taxes on alcohol and tobacco. These levies
will disproportionately affect lower-income Nevadans. According to Congress's
Joint Committee on Taxation, more than 2/3 of all federal tobacco taxes come
from those earning less than $40,000 per year (this is true of state tobacco
taxes as well). And higher tobacco taxes in recent years have also spawned
a burgeoning market in cigarette smuggling, which can even be linked to terror
cells in the U.S.
Finally, the Nevada pols also added a tax on real estate sales and a tax
on live entertainment. But perhaps most outrageously, all these tax hikes
were enacted to underwrite a 30.5 percent increase in spending. This staggering
increase far outpaces inflation and population growth.
Beyond paying the direct costs of this tax hike, Nevadans can also expect
to see their incomes take a hit as the new taxes slow the state's
economy. A review of state budget history in the aftermath of the
last fiscal crisis in the early 1990s makes it clear that raising
taxes to solve budget shortfalls is pure economic poison. In a study
for the American Legislative Exchange Council, economist Steve Moore
examined the ten states that cut taxes or avoided tax increases
over 1990-1996 and compared them to the ten states that raised taxes
the most during this period. By a variety of measures, over the
period 1990-1997 (the time period is lagged to account for implementation),
the tax-cutting states outperformed the tax-hikers:
-
Population Growth. The tax-cutting states gained
13 percent in population, while the tax-raising states grew by only 3.8
percent during this time.
-
Employment Growth. The tax-cutting states saw
employment rise by 16.3 percent, while the tax-raising states saw employment
increase by only 5.3 percent.
-
Income. State personal income grew by 22.5 percent
in the tax-cutting states, but only by 11.3 percent in the tax-raising states.
Moore's findings about the relationship between lower taxes and greater
economic growth are echoed in many other studies. A study by the National
Center for Policy Analysis and Canada's Fraser Institute looks at economic
freedom in America's 50 states and finds that those with greater freedom (measured
by such things as lower taxes and more flexible labor markets) have higher
per capita incomes. The ten freest states have per capita output that is $2,560
higher than the average state.
Other states have raised taxes this year, but most of them also at least
reined in spending. Not so in Nevada. So as bad as this year's tax hike was,
there could be more in the works in coming years to feed the voracious spending
appetites of Governor Guinn and his public employee allies.
Nevada has been one of America's most economically-attractive states in
recent years. Under the bungled policies of Kenny Guinn -- the Mario
Cuomo of the west -- that appears likely to change.
John Berthoud is President of the 335,000 member National Taxpayers Union |
