Nevada Think Tank NPRI Gets Extra Thinky on Tax Reform

The fact that I didn’t blog about this new tax proposal from NPRI yesterday, Dear Readers, should not be interpreted as an indication that I think it’s unimportant.  The delay was a factor of time because it was a very busy day and the report is 32 pages long (to be fair to its author, that includes a blank page and six very pretty charts and graphs).

The report may be the most notable thing to come out of the Nevada Policy Research Institute in some time.  And oddly enough, it’s about levying taxes.  Or rather, adjusting them around a bit.

Here are the key elements from the suggested (revenue-neutral) reforms:

• Eliminating the modified business tax;

• Eliminating the insurance premium tax;

• Broadening the sales tax base and reducing the statewide sales tax to 3.5 percent;

• Implementing priority-based budgeting; and

• Implementing spending controls that limit state spending growth to the rate of inflation plus population increase.

There are things here to either love or hate, depending on your perspective.  Which is an indicator that as a whole it could qualify as a pretty good piece of policy.  If every legislator has to give in some areas in order gain in others, no one feels like he “lost” — and no one can boast that he “won.”  (Well, ok, he can.  And probably will, especially when up for reelection.  But in any good legislative compromise, the players tolerate the trumped up public rhetoric of their good friends across the political aisle while remaining privately content with reality.)

I’ll let you read the report for yourself, but here are some early thoughts after my first read:

It may or may not be the best solution for stabilizing Nevada’s tax base, but is a solution, and one that is viable enough to kick off a statewide dialogue.

Whatever one’s political leanings, it cannot be denied that the general volatility of tax revenue is a problem for Nevada and many other states.  Fluctuations in revenue cause all kinds of hardships which are then blamed on all kinds of random things as public officials, most of whom are also politicians, scramble to make adjustments and cover their anterior regions.

Erratic revenue streams also tend to impede planned, steady growth of worthy infrastructure(s) that is/are the foundation of civil society.

Compounding the instability problem is government’s tendency to spend every dime it takes in, and then some, when revenues are flowing freely.  History shows us that state legislators of both parties are incurable amnesiacs who can nearly always be relied upon to forget about past budget crunches while assuming present-day cash will keep coming ad infinitum.

The quick, common cure for this ailment of fiscal forgetfulness?  A good dose of tax hikes, either via rate increases of existing taxes or brand new taxes and fees.

Just like those that came out of Nevada’s 2003 legislative session, including a modified business tax, real property transfer tax and bank branch excise tax.  And hikes to the cigarette, liquor and gaming tax.  (Ever notice that most legislators are happy to tax you long-time if you smoke, drink or gamble?  Good thing no one in Nevada likes to do any of those things.)

And then came 2004-2005, and lo-and-behold, in a never-before-seen phenomenon caused by the collision of tax hikes and economic boom times (insert dripping sarcasm here), the state’s General Fund grew bigger and bigger and economic projections became rosier than the lenses in Janis Joplin’s favorite sunglasses.

Groovy.

Except that the oh-so-predictable response of our esteemed elected was to (drum roll) spend every stinking dime of the surplus.  Which then caused a bit of a budget problem when revenues dropped off in recent years.  And so on, and so on.  After all, the boom and bust must go on or it just wouldn’t be Nevada (or America), right?

Maybe.  But fiscal analyst and author of the NPRI report, Geoff Lawrence, at least, dares to dream otherwise, for which I think he deserves credit.

And so, apparently, does Ralston, who last night had Lawrence on Face to Face and then today penned a very read-worthy column on the proposal.

Make of that what you will, Dear Readers, and please drop a Comment below after you’ve read the report.

  • BonnieJ

    I like that you mention the 2004-2005 surplus, but wish you would have mentioned that the State issued a rebate in 2005 of $300 million to the citizens because of the overflowing coffers. I didn’t want my rebate then because I thought it should have gone into the Rainy Day Fund.

    While $300 million may sound like a lot of money, it’s but a small amount compared to what has been cut from the State’s budget in the past 3 years. I *still* wonder what that $300 mil could have done to help stabilize out State budget.

  • http://writeonnevada.com Patrick R. Gibbons

    Actually $300 million is about all that was cut out of the state budget over the last 3 years. Imagine how much would have been cut if those taxes were never raised in the first place? Answer $0 (and a several billion windfall for Nevada’s wealth producing sectors and lower unemployment today).

  • BonnieJ

    Your sources Mr. Gibbons?