What Has Governor-
Elect Guinn Inherited?
by Judy Cresanta
ith the election of a new governor who will inherit the good and bad consequences of his predecessors fiscal policies, its appropriate to look at Kenny Guinns immediate fiscal challenges.
The National Tax-Limitation Foundation reveals in a recent study that Nevada has significantly increased state spending in relation to per capita personal income and awards the state only a "C" in fiscal discipline. Fiscal discipline refers to those policies a state implements to restrain the growth of government relative to the growth of the private sector. Nevadas poor grade is just one indicator of troubled economic times ahead. Other such indicators are inadequate commitment to economic diversification, regressive tax policies and the Indian gaming proposition passed overwhelmingly in California. Yet all of these challenges could be addressed were there greater political focus on interstate tax competition to attract business investment and higher-paying jobs. The states winning this competition historically have demonstrated fiscal prudence, which protects them to some degree from down-swings in the business cycle. Nevada is not one of them. The new governor should be getting an "uh-oh" feeling.
From 1955 to 1997 the total tax burden on the income of two-wage-earner families increased more that 10 percent, which translates to a growth from 25 percent to 35 percent of personal income. This is explained by two tax trends: the upward trend in state and local taxation, and increases in the federal payroll tax used to fund social insurance programs. State and local taxes combined as a share of the family budget grew five percentage points (from 7.4 percent to 12.9 percent), while payroll taxes (employee contributions) also increased sharply (from 1.5 percent to 7.3 percent).
As the total tax burden on families has increased, it has crowded out family savings and compromised consumer spending. Taxes now claim a larger share of the family budget than food, clothing, housing and transportation combined.
The total tax burden varies significantly from state to state. At present (not counting the 1998 sales tax hikes in selected Nevada counties), there are seven states in which the total tax burden exceeds $10,000 per capita. Nevada ranks sixth among these seven, with its residents forking out, on average, $10,400 per year to Carson City and Washington. This amounts to just under 40 percent of each persons individual income. Almost $3,500 of that goes to state and local taxes, and nearly 44 percent of this is generated by excise taxes, viewed by many as the most regressive of all.
Taxes must be equitable, fair and efficient. They must be collected cheaply with low administrative overhead. They must not impede business ability to compete interstate and internationally. They must not generate more revenue than is needed to finance necessary spending. Otherwise they raise a question: is government getting beyond its proper function? Last and perhaps most importantly, they must not be used as tools for social engineering, to pick winners and losers among individuals and businesses.
Thirty-eight years ago Henry George emphasized that the mix of taxes may matter as much or more than the total amount of revenues collected. "The mode of taxation is, in fact, quite as important as the amount," he wrote in Progress and Poverty. "As a small burden badly placed may distress a horse that could carry with ease a much larger one properly adjusted, so a people may be impoverished and their power of producing wealth destroyed by taxation, which if levied in any other way, could be borne with ease."
Accordingly, our new governor could give his constituents an especially appreciated Christmas gift by undertaking a fresh examination of Nevadas regressive and increasingly antiquated tax structure. NJJudy Cresanta is president of Nevada Policy Research Institute.