Where I Stand — Gary Loveman: Taxes must be balanced

Friday, Aug. 8, 2003 | 4:47 a.m.

Editor's note: In August the Where I Stand column is written by guest writers. Today's columnist, Gary Loveman, is president and CEO of Harrah's Entertainment Inc.

FOR MORE than a decade, our state has seen explosive growth unparalleled in our country.

In the past 10 years alone, Nevada's population has increased by 66 percent -- five times the national average. Two of the five fastest growing cities in the country -- North Las Vegas and Henderson -- are located in the Las Vegas Valley. With this growth, our state's public resources are being severely strained.

This year Gov. Kenny Guinn laid down the gauntlet to the Nevada Legislature and the Nevada business community: Create a stable tax foundation that will allow Nevada to meet the challenge created by our rapid growth.

The governor showed considerable foresight and courage in promoting his proposal. But unfortunately for Nevada, he was criticized.

Senate Bill 8, which will raise $836 million in new tax revenue over the next two years, will not fulfill the governor's vision of a stable, diversified tax base to support future growth.

The recently enacted minimal payroll tax creates the illusion that we are diversifying our state's tax structure. The reality is that it will do little to meet this goal. It will raise $320 million over the next two years, 6 percent of the state's budget. Roughly half of the state's total tax revenue will continue to come directly from the gaming industry.

Instability will come back to haunt this state in 2005 and beyond, unless lawmakers finally find the political courage to establish a long-term solution.

For decades, Nevadans have been content to prop up their state's budget on the back of the gaming industry. But we are the fastest-growing state in the Union, and it is becoming more painfully clear with each passing year that this is a luxury we can no longer afford.

Like all Nevada businesses, we share the desire to see a truly diverse economy, driven not just by tourism and gaming, but also by industries such as technology, manufacturing and entertainment. A diverse economy is a vibrant economy. And a vibrant economy benefits all Nevada companies and all Nevada residents.

But we cannot simply wish this vision into reality. The simple truth is that we all must invest in the foundation a diverse economic base requires. We must commit ourselves to investing fully in education, for diverse industries demand well-educated workers. A state that ranks 46th in education spending per pupil is clearly not doing all it can to create the educated workforce a 21st century economy demands. We must also make an appropriate investment in building our infrastructure, which is straining under the state's explosive growth.

Of course, many have a simple solution to this problem. Since the gaming industry is extremely profitable, they reason, why not simply impose higher taxes on casinos? It is an answer that has grown more tempting in the face of gaming tax hikes in states like Illinois and New Jersey.

This is a simplistic solution. And it is one not grounded in reality.

Here are the facts:

Clearly, rising taxes and falling returns are a vicious cycle that threaten the gaming industry's capacity to continue as a growing source of tax revenue for the state. Moreover, equity alone should dictate that all industries that are profiting in Nevada -- particularly those who enjoy significantly higher profit margins than the gaming industry -- should be asked to invest in the future of this state through reasonable tax levies.

But diversification is also financially advisable for Nevada. As an individual investor, you would be unwise to place half of your entire investment account in a single stock. Why, then, is it any wiser for Nevada to invest its entire future on a single industry?

It is also unrealistic to expect Nevada casinos to pay the same tax levies as other states for a simple reason -- competition. Other states may charge higher gaming taxes, but these states have restricted the number of casinos in operation, allowing for higher returns on investment. Nevada has no such restriction; 352 "non-restricted" casinos are now competing for each gaming dollar spent in the state.

No one likes taxes. Believe me, I'm sure Harrah's Entertainment's shareholders would be quite pleased if I told them their company no longer had to pay approximately $100 million a year to the Nevada treasury. But we understand, as a Nevada business, that we have a responsibility to pay for the government services that benefit our company, our employees and the communities where we operate.

For decades the gaming industry has been proud to play a key role in building a stronger Nevada. We are fully prepared and willing to continue contributing toward Nevada's future.

But we can no longer do it alone. The sooner the business community is willing to follow us, the sooner Nevada will be able to lay the foundation for prosperity for decades to come.