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June 23, 2003

COMMENTARIES: Budget Stalemate


As head of Governor Kenny Guinn's Task Force on Tax Policy, Guy Hobbs is frustrated that the Nevada Legislature re-convenes this week with seemingly no solution in sight to funding the state budget.

The Legislature has substantially decided upon a spending plan. State department budgets, with the exception of those for education, have been approved by a strong majority, representing nearly 70 percent of the Legislators. However, the approval of the education budgets and the funding plan to generate the funds necessary to fund the approved expenditure plan is still at an impasse, with a minority of our elected leaders holding out for additional concessions.

The Legislature, minority and majority alike, have generally agreed that a tax upon general business is a necessary component of a solution. However, the viewpoints toward the type of business tax that may best serve the State's needs are deeply divided. Are these divided viewpoints based upon strong fiscal principles and policy considerations, or are they being forged more by political motives?

To better understand the answer to this question, let's consider some of the general characteristics of the three business taxing methods being discussed. Note as we go through these that these are the only direct methods for taxing business; every other method mentioned during deliberations is a variation of one of these methods:

- The first source imposes a tax on the cost of labor, which, in turn, increases the unit cost of labor. This source also disproportionately impacts service-oriented businesses when compared to product-oriented businesses, and has no association with a businesses ability to pay. This is otherwise known as a payroll tax.

- The second is characterized by a high degree of demonstrated instability, is comparatively easier to evade, and has the highest administrative costs among the alternatives. States that have relied upon this source have experienced average declines in revenue of more than 20 percent in recent years. This one is also known as a business income tax.

- The third has been shown to be comparatively stable and is relatively easy to administer, though it is less common than the others. Ability to pay is also at issue with this source. This is also known as a receipts, or business excise tax.

Based upon these descriptions, who could possibly imagine that the process would have gravitated away from the most stable source toward less desirable outcomes? Who could possibly imagine that we would be moving away from easier (and cheaper) to more difficult (and more expensive) administration system? Who could possibly imagine that we would forsake stability and predictability for political expediency?

What needs to be remembered is that we are at a crossroads of opportunities. As unpleasant as the task of raising taxes may be, there are opportunities to do it right and there are opportunities to suffer dire consequences if we do it wrong. In this case, the expedient way is the wrong way.

It's interesting to note that the Legislature has been struggling with these very complex issues for the past few weeks and, at times, it appears that the dialogue and arguments are circular. In their defense, this is not an easy subject. However, it was also the Legislature that unanimously commissioned the Governor's Task Force on Tax Policy two years ago to address this very issue. Testimony was received from hundreds of individuals and groups. Countless hours went into this deliberative process, and a recommended solution was forged in a public forum. When we look at where we are now, at this almost twelfth hour, shouldn't we, at a minimum, question the motives of those who choose this late hour to offer new options for consideration when, in fact, there are no options to consider beyond those already on the table?

An intractable position of 'my way, or the highway' may prove to be the road to economic consequences our children do not deserve.

See discussion rules.


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