Tax system still has holes, critics say

Erin Neff

Wednesday, July 23, 2003 | 11:18 a.m.

Just a day after the state's biggest tax increase in history, some are saying the biggest loss this legislative year was in the opportunity to fix the tax system.

Despite passage of the plan to raise $836 million in taxes, the method by which the taxes are raised and amount could lead to problems by the time lawmakers arrive for the 73rd Legislature in 2005, according to some people involved in the process.

"There's a good-size problem out there," said Michael Hillerby, Gov. Kenny Guinn's deputy chief of staff. "There's a concern that there could be some holes."

In an interview before lawmakers passed the tax package Monday, Guinn said he feared any spike in welfare cases or shortfall in revenues from projections would leave him with decisions about how the state must proceed.

"I would be the one that has to cut the budget then," Guinn said. "If the money isn't there, something will have to be hit."

Most doubt a doom-and-gloom scenario for the state's revenue, in part because they believe that the economy is rebounding and that the tax increases will begin to help stabilize the state's funding.

"I think this plan is sufficient to get us through," Senate Majority Leader Bill Raggio, R-Reno, said early Tuesday after the Legislature had adjourned. "If it isn't, I think it will only be minor things that need adjustment."

Assembly Speaker Richard Perkins, D-Henderson, said he would have preferred to follow more closely with the Nevada Task Force on Tax Policy's recommendation for a broad-based business tax.

"The estate tax is going away and we have federal appropriations this time that won't be there next time," Perkins said.

Hillerby also pointed to the $76 million in federal funds and about $200 million in estate tax money that lawmakers chose to put into the budget to fund programs.

In 2005, $276 million in programs will already need funds that are not available from their previous source.

What's more, lawmakers chose not to restore $30 million to the so-called rainy day fund and kept the ending fund balance at the exact 5 percent required by law.

Guinn originally asked lawmakers to restore $50 million to the Fund for the Stabilization of Government -- the "rainy day" fund -- and asked for $50 million more than the 5 percent ending fund balance requirement in the other safeguard account.

Hillerby points to the $17 million the state found itself short at the end of the 2003 fiscal year as a result of gaming tax revenues, which came in lower than anticipated.

"It's not all roses," Hillerby said.

Conservatives scoff at such talk, saying the taxes will begin to generate $943.8 million once all taxes are in place for an entire fiscal year. The implementation dates of the taxes is the reason the levies raise $836 million over the next two years.

Assemblyman Bob Beers, R-Las Vegas, also pointed Tuesday to the "cushion" that was built into Senate Bill 8. The school budget required spending of $811 million, but lawmakers raise $836 million with the taxes.

Perkins said after the $17 million in lost gaming revenue is made up, lawmakers will have just $8 million in cushion -- an amount some believe will be needed to offset revenues from the live entertainment tax.

That tax, a levy of up to 10 percent on the admissions, food and beverages at certain live entertainment events, is such a new endeavor that SB8 asks the Department of Taxation to study what constitutes such an event.

Guy Hobbs, chairman of the now-defunct Nevada Task Force on Tax Policy, said he would have preferred lawmakers had enacted a broader-based tax on business than the payroll tax they chose.

He said by continuing to tax businesses per employee, larger revenue streams cannot be tapped to diversify the economic base away from gaming and sales tax revenues.

"It's a wasted opportunity," Hobbs said.