Will the 1997 Nevada Legislature Dishonor
Its Bargain with Property Owners?

By Ralph Heller, NPRI Senior Research Fellow

 

Writing several thousand years ago in what appears to have been a land of milk and honey, the author of the Song of Solomon, obviously a poet, declared that so serene was his world that “the voice of the turtle is heard throughout the land.”

Things have changed radically since then, of course, and these days it isn’t the voice of the turtle you hear echoing across the mountains and deserts of Nevada, but the voice of the tax collector.

Some of this unending plea from government for more cash -- at least for capital investment -- is understandable in a fast growing state, of course. Clark County officials only last month were debating the merits of an $850 million school bond referendum for this fall, and Washoe County voters will soon be deciding the fate of two bond issues, one for their school district at the primary election in September, and a second one to expand the county’s jail capacity in November, which is a problem facing Clark County, too.

Philosophically, at least -- and quite aside from the merit or lack of merit of any particular ballot question this year -- there is nothing inherently wrong with borrowing money to build institutions likely to be needed tomorrow. This is pretty much what most of us did the first time we took out a home mortgage.

But this year’s demand for more taxpayer money goes beyond capital improvements and bond issues, and several cities in Nevada will try to convince the 1997 Nevada Legislature to modify the depreciation factor that reduces property taxes on older homes, and to eliminate or at least hike the present statutory limit on property taxes.

The problem with all this is that Nevada’s present property tax structure is the result of a bargain struck between the state and its constituents, especially home owners, a decade and a half ago, a bargain that promised low, limited property taxes in return for increased state excise and consumption taxes and fees.

The bargain obviously helped the owners of older homes in terms of their tax liability, but the really big winner -- indeed, the huge winner - was the State of Nevada. What we know as the “tax shift” triggered a decade and a half of tax and fee increases unprecedented in American history.

The Tax Record Carson City Would Rather You Not Know

Curiously, even after the famous “tax shift” -- or perhaps in spite of it -- property taxes throughout Nevada are higher than when the bargain was struck. Accordingly, while property owners have little to show for the bargain, government has reaped financial dividends far, far beyond what anyone envisioned a decade and a half ago. A partial list of tax and fee increase enacted since 1981 makes the point crystal clear:

 

Insurance premiums tax up 75%
Marriage license fee up 75%
State general sales tax up 85%
Diesel fuel tax up 90%
County general sales taxes up to 100%
Minimum and maximum
SMOG fees up 100%
Entrance fees, state parks up 100%
Driver’s license fee up 250%
County gasoline tax (Clark County) up 250%
State gasoline tax up 290%
County gasoline tax (Washoe County) up 300%
Basic automobile registration fee up 310%
Cigarette tax up 350%
State portion of property tax up 500%

In the same period there have also been more modest increases in the liquor, cordials and beer excise taxes, hunting and fishing licenses and truck registration, as well as an increased schedule of court cost fees representing increases in some instances of up to 950 percent. All of this didn’t happen at once, of course. For example, the 75 percent increase in Nevada’s tax on insurance premiums, a tax that exists in only six states, actually represents two increases. Similarly, the whopping percentage increase in the cost of driver’s licenses actually represents four increases, and, incredibly, Nevada’s state gasoline tax has been increased no fewer than six times since 1981,which is how the Legislature managed to increase the gasoline tax by 290 percent, step by step by step, without alarming anyone with an especially big increase in any one legislative session.
Yet even this floodtide of unprecedented taxation didn’t provide enough tax revenue to suit Governors Richard Bryan and Bob Miller or Nevada’s legislators, so during this same decade and a half eight brand new taxes were enacted and implemented for the first time:

 

Mining gross receipts tax
SMOG inspection fee
Jet fuel tax
Divorce fee
Non-cigarette tobacco tax
Water application permit fees
Sales tax on catalogue sales
Business license tax

Three of those new taxes -- on mining gross receipts and jet fuel, and the business license tax -- exist in only a few states. Similarly, Nevada is one of only 23 states to permit county sales taxes to be levied on top of its state sales tax, and one of only 13 states to permit county gasoline taxes to be levied on top of its state gasoline tax.
Yet in all the reporting and editorializing about high gasoline prices earlier this year there was no mention of The Wall Street Journal’s report that Nevada’s state gasoline tax is the sixth highest in the country, and that when Nevada’s county gasoline taxes are added to its state gasoline tax only the residents of one of the Hawaiian Islands pay higher total taxes on gasoline than most Nevada motorists.

Still, the most counter-productive of all Nevada taxes is probably the misnamed business license tax. What it actually is, of course, is a tax of $100 to be paid by each business in the state for each employee on its payroll -- in other words, a “state jobs tax.”

Sometime try to explain to a senior citizen born and raised during the Great Depression that the State of Nevada actually taxes employers for each employee they hire off the street and then watch him shake his head from side to side in disbelief.

Nevada Tax Revenues Go Through The Roof

The result of this sparsely reported but nonetheless runaway taxation has been enormous increases in tax revenue, especially for state government. During the decade of the 1980’s tax revenue in Nevada increased by 190 percent, the fourth highest tax revenue percentage increase among the 50 states.

Updating growth figures in 1994, the Nevada Taxpayers Association reported the critical growth figures for the period from fiscal year 1981-82 through fiscal year 1992-93:

 

Nevada tax revenue up 223%
Nevada population up 59%
Consumer Price Index up 49%

In other words, even after inflation and population growth have been accounted for, Nevada state, county and municipal government

 

managed to double the number of tax dollars extracted from each citizen in the state in little mere than a decade.
This, then, is the statistical story behind NPRI’s report to readers in the last issue of this magazine that at $1,680 Nevada’s “per capita tax burden” is the 12th highest among the 50 states. Indeed, Nevada’s “per capita tax burden” is now only about $100 per person less than the “per capita tax burden” in such traditionally high tax states as New York and New Jersey and is actually a few dollars higher than today’s “per capita tax burden” in California which stands at $1,660. These “per capita tax burden” rankings involve the most simple and straight forward calculations imaginable; total tax revenue collected in each state is divided by population.

For so long as Nevada enjoyed the economic fruits of its unique gaming industry, unbothered by gaming competition in other states, its tax structure -- although exceptionally hard on its poorer citizens -- scarcely detracted from the health of the state’s economy at all. But that is now changing, and changing rapidly, and Nevada is shortly going to have to live with the economic and tax realities that face other states.

It's Time For Nevada Legislators To Face The Real Economic World

With Nevada’s gaming monopoly days over, suddenly the sorts of economic studies traditionally scorned in Carson City can no longer be ignored. Especially interesting is a study conducted by Paul Brace of the University of Illinois at Chicago, and a recent state-by-state analysis of tax impacts published by Business Week.

The University of Illinois study shows that prior to the mid-1960’s tax rates tended to converge and it was our national tax structure which registered greatest impact on each state’s economy. In 1968, for example, national political influences were three times as significant as state political influences, but by 1985 this had changed radically and since 1985 the studied ratio has shown a rough equivalence between national and state factors. Moreover, discovered University of Illinois researchers, it is now tax policy that has the greatest impact on economic growth, not “investment” in infrastructure or spending programs.

This will come as discouraging news for university administrators and others who never tire of spending more money. Even their students get taken for a ride. For example, a recent analysis of university fee increases at UNR in Reno reveals that after a 16 percent increase in 1983 fees remained stable at $40 a credit until 1989.

But since 1989 there have been fee increases of 15 percent, 6.5 percent, 12.2 percent, 4 percent and 5.2 percent, five increases in seven years. Rapid-fire increases of such magnitude and frequency can’t be justified any more easily than six increases in a state gasoline tax in eight legislative sessions.

No easier to justify in Nevada than elsewhere are the huge increases in spending for secondary education during the last decade and a half, representing financial sacrifices for which taxpayers have little or nothing to show. A statistical summary of the changes in Nevada’s public education system between the 1982-83 school year and the 1994-95 school year makes unmistakably clear how little has been accomplished with vastly increased spending:

Student enrollment up 66%
Number of teachers up 85%
Number of non-teaching personnel up 96%
Total education operating expenditures up 213%
Nevada student SAT scores (math) up 0.006%
Nevada student SAT scores (verbal) down 1%

Precisely as University of Illinois researchers discovered, public “investment” in education and other programs has little impact and accomplishes surprisingly little. NPRI is indebted to many of its loyal readers for the raw data from the Nevada Department of Education from which these percentage changes have been calculated.

Of public education in Nevada Winston Churchill might have said, “Never in the history of education have so many paid so much to accomplish so little.” Just as the University of Illinois study makes it clear that tax policy is considerably more important than other factors in determining economic growth, the recent Business Week survey makes it painfully clear that there is a price waiting to be paid for a tax and fee structure as unstable and increasing as fast as Nevada’s.

The magazine found that between 1985 and 1993 job growth in the 10 lowest-tax states exceeded job growth in the 10 highest-tax states by a whopping 65 percent! For so long as Nevada enjoyed a virtual monopoly on gaming as its major industry the state could afford to ignore such economic realities, but those days are gone forever.

Will The Bargain With Property Owners Be Honored Or Dishonored?

Increasingly it looks like one of the first tests of Nevada’s willingness to come to grips with its decade and a half of run-away taxation will come in the 1997 legislative session when some of the state’s cities plead for a reduction of the depreciation factor figured into present property taxes, while probably also asking the Legislature to lift (or at least to modify) the present limit on property taxes.

In another state or at another time these pleas might have had merit, but Nevada’s present local and county tax structure is the product of a bargain struck a decade and a half ago with property owners, a bargain every one called the “tax shift.” In return for relatively low, stable property taxes, the people of Nevada agreed in turn to pay increases in virtually every other tax and fee they must pay.

A hurried glance at the partial list of tax increases near the beginning of this article makes it unambiguously clear that state government and the Nevada Legislature have used that promise of low and stable property taxes as the rationale for an outburst of other tax and fee increases unlike any other ever passed in a state in so short a time.

Meanwhile, property taxes have risen anyway and are now higher than they were before the “tax shift.” In some ways the depreciation factor figured into property taxes actually makes little sense, and it’s no secret that many properties increase in value with age. But Nevada’s present tax structure is the by-product of a bargain made with the people of Nevada, a bargain that has already cost them dearly in terms of all the other taxes they must pay.

That bargain has produced an unprecedented river of cash flowing to state government which at this moment, on a per capita basis, is funded more handsomely than most other state governments. Indeed, at present fully 67.2 percent of all tax and fee revenue collected by state, county and city government in Nevada goes to state government, the 16th highest such percentage among the 50 states.

If Nevada’s cities and counties need more money they know precisely where to get it -- not from already over-burdened Nevada taxpayers who are shouldering the 12th highest “per capita tax burden” in the country, but from a restructuring of Nevada’s taxes and fees to provide a more equitable and workable distribution of tax revenue between state government and its subsidiary county and city governments.

The people of Nevada have lived up to their end of the bargain. In return for relatively modest and stable property taxes they are struggling with many of the highest excise taxes, sales taxes and user fees in the nation. In the 1997 Legislature there should be absolutely no increases in taxes or fees without commensurate reductions in other taxes and fees. The 12th highest “per capita tax burden” in the nation is quite high enough, thank you, especially in a state where many politicians and the press even today keep insisting that we live in a “low-tax” state.

Really, shouldn’t tax revenues soaring upward at a rate of 200 percent per decade be enough?

 

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