blank.gif (51 bytes) Second Thoughts
The Clouds Are Gathering
by Ralph Heller, NPRI Senior Research Fellow

ew things could underscore the changing nature of Nevada’s economic climate more dramatically than a pair of charts recently released by the U.S. Department of Commerce. The first of the two charts, shown below, reveals Nevada enjoying the 12th highest per capita personal income among the states in 1997, but the second chart, shown on the opposite page, shows that when it comes to measuring the annual percentage gain in per capita personal income Nevada has slipped to 48th—or 49th if you wish to include Washington, D.C.

Per Capita Personal Income, 1997

Connecticut
Dist. Columbia
New Jersey
Massachusetts
New York
Delaware
Maryland
Illinois
New Hampshire
Colorado
Minnesota
NEVADA
Washington
California
Virginia
Pennsylvania
Hawaii
Rhode Island
U.S. Average

Michigan
Alaska
Florida
Ohio
Wisconsin
Oregon
Kansas
Georgia
Missouri
Nebraska
Texas
Indiana
Vermont
North Carolina
Iowa
Tennessee
Wyoming
Arizona
Maine
South Dakota
Alabama
South Carolina
Louisiana
Kentucky
Oklahoma
Idaho
Utah
North Dakota
Montana
New Mexico
Arkansas
West Virginia
Mississippi

$36,263
35,852
32,654
31,254
30,752
29,022
28,969
28,202
28,047
27,051
26,797
26,791
26,718
26,570
26,438
26,058
26,034
25,760
25,598
25,560
25,305
25,255
24,661
24,475
24,393
24,379
24,061
24,001
23,803
23,656
23,604
23,401
23,445
23,102
23,018
22,648
22,364
22,078
21,447
20,842
20,755
20,680
20,657
20,556
20,478
20,432
20,271
20,046
19,587
19,585
18,957
18,272

The state-by-state rankings are calculated and distributed by the Commerce Department each year, usually in mid-summer, and concerned citizens can look for the updated charts, reflecting figures for the year 1998, next summer. Meanwhile, these rankings for 1997 should be a source of concern for all Nevadans because the state’s drop in percentage gain for per capita personal income from 1996 to 1997 means that the state’s actual ranking when it comes to per capita personal income is also destined to drop.

With gaming, once Nevada’s monopoly in the U.S., now spread across the country some change in the state’s comparative economic status was to be expected. Of course, the fact that growth in per capita personal income just barely kept pace with inflation from 1996 to 1997 will come as a surprise to many Nevada residents and to more than a few of its politicians.

Las Vegas has already had to change its marketing strategy to appeal to non-gamblers, so that a report in the August 1998 issue of International Gaming & Wagering Business reveals that the hours a typical tourist spends gambling each day in Las Vegas have dropped from 5 to 3.9 just since 1991. And Reno, having tried everything from an automobile museum to a bowling stadium to attract more tourists, is only now coming to grips with the fact that its most persuasive attraction for tourists may not be Reno at all, but Lake Tahoe.

Percentage Gain In Per
Capita Personal Income,
1996 to 1997

Connecticut
Texas
Massachusetts
Washington
Oregon
Kansas
Utah
New York
Colorado
Illinois
Ohio
Oklahoma
District of Columbia
Louisiana
North Carolina
Pennsylvania
Wyoming
Arizona
New Hampshire
U.S. Average
California
Maine
Maryland
Rhode Island
Virginia
Wisconsin
Delaware
Georgia
Kentucky
Tennessee
Florida
Missouri
New Jersey
Indiana
Minnesota
South Carolina
New Mexico
Michigan
Mississippi
Montana
West Virginia
Alabama
Vermont
Nebraska
Iowa
South Dakota
Arkansas
Idaho
Alaska
NEVADA
Hawaii
North Dakota
6.1
6.0
5.8
5.7
5.5
5.4
5.4
5.2
5.1
5.0
5.0
5.0
4.9
4.9
4.9
4.9
4.9
4.8
4.8
4.8
4.7
4.7
4.7
4.7
4.7
4.6
4.5
4.5
4.5
4.5
4.4
4.4
4.4
4.3
4.3
4.3
4.1
4.0
4.0
4.0
4.0
3.9
3.8
3.6
3.5
3.4
3.3
3.1
2.9
2.8
2.4
-1.0

In other words, with more tourists shopping and sightseeing and fewer of them gambling Nevada can expect tax revenue from its gaming tax—long overstated as a percentage of total state tax revenue—to produce a smaller and smaller percentage of dollars needed by government. Indeed, the economic outlook for neither the state of Nevada nor the nation is quite as rosy as the press would have had us believe only a few months ago.

Editorial writer after editorial writer repeatedly raved over the health of the "Clinton economy" in recent years when in fact Federal Reserve Chairman Alan Greenspan wasn’t far from the truth when he cautioned the nation about "irrational exuberance," and only now is the press noting that during the year ending June 30, 1998 bankruptcy filings topped 1.42 million, an increase of 9.2 percent over the previous year and up from 845,000 filings per year just four years ago.

Economic growth as measured by Gross Domestic Product (GDP) averaged 2.6 percent per year between 1993 and 1997, the first five years of the Clinton Administration—impressive but hardly precedent-shattering. By way of comparison, note that during the Reagan years GDP increased an average of 3.9 percent a year.

Meanwhile, right up to August of this year government was proceeding as though nothing were remotely amiss and nothing could ever go wrong with the U.S. economy, especially in Nevada.

A few weeks ago the Board of Regents, which managed to get a 30 percent increase in educational expenditures out of the last legislative session, was preparing to ask for another increase in the upcoming legislative session—this time an increase of 45 percent—and all this, mind you, to finance an enrollment increase of 6 percent a year.

Just last month, commenting on a report from the Cato Institute, a libertarian think tank, Governor Bob Miller was quoted by the Associated Press as boasting, "We’re the third-lowest taxed state in the country and we’ve met our growth needs at the same time without increasing taxes." This is nonsense, obviously, and according to the U.S. Census Bureau which calculates such rankings Nevadans now have the 12th-highest per capita tax burden among the 50 states.

In just the last two decades Nevada has passed multiple increases in its gasoline tax, its sales tax, its insurance premium tax, its cigarette tax, its property taxes plus a long list of fee increases including automobile registration fees and the driver’s license fee. Interestingly, the North Koreans have a delightful word to describe the ideological myopia one finds in Carson City—yuilsasang, defined as "ideological monochromaticity," the ability to stick to an ideological political agenda without regard to the everyday realities of life.

Nevada’s precipitous drop in percentage gain in per capita personal income has two principal causes: (1) the rapid spread of gaming around the country while state government wasn’t taking the challenge of economic diversification seriously enough, and (2) to a lesser extent Nevada’s uniquely regressive tax structure which inevitably compromises the financial well being of lower- and middle-income workers and families. The first of these two causes has hit the state very hard in a very short period of time; just a decade ago all U.S. casino games were in Nevada and Atlantic City, but already in 1997 fully 48 percent of the nation’s total "gaming win" was generated outside those two markets.

Moreover, there are those who predict that if California’s Proposition 5 is approved Nevada could suffer a one-third reduction in annual visitors from California within a very few years. The picture isn’t pretty, and while clouds have been gathering on Nevada’s economic horizon state government has proceeded almost as if nothing were amiss. Meanwhile the state’s high taxes and regressive tax structure coupled with the growth of gaming elsewhere undermine Nevada’s economic future. Interestingly, many of the politically liberal states of the Northeast discovered the role of high taxes in compromising economic well-being several years ago and began slashing taxes rather than raising them. Indeed, the rankings of such states as Connecticut and Massachusetts on these two charts speak for themselves.

Meanwhile, with their annual growth in per capita personal income reduced to 49th among the states, Nevadans can only hope that somebody in Carson City is listening.  NJ

Ralph Heller is senior consulting editor of Nevada Journal.


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