Lawmakers’ huddle with business a step toward tax hike

By J. Patrick Coolican

Sunday, April 26, 2009 | 2 a.m.

A meeting of legislative leaders of both parties and a few members of the business elite last week seemed to confirm, at least in part, the wisdom of the Democrats’ strategy for selling a plan to fix the budget mess.

For months legislators have been tight lipped about what they planned to do to fill the more than $2 billion budget gap, with Democratic Assembly Speaker Barbara Buckley refusing to even utter the words “tax increase.” Where’s the secret tax plan, and what’s in it? grumbled public, press and lobbying corps.

Although there may not be a secret plan, there’s little doubt that legislative leaders have known that a tax increase is coming and were trying to methodically build support before they introduced it.

Last week’s closed-door meeting was an important and carefully choreographed step, with invited business leaders from gaming, development and mining all saying a tax increase — albeit one that is fair and broad-based — is proper, necessary and inevitable.

Of course, the most virulent anti-tax business types, like, say, representatives of Las Vegas Sands, weren’t invited.

Buckley has come out against a corporate income tax, even though significant business players have endorsed that idea. That leaves a sales tax on services, upping the current sales tax and increasing the modified business tax, which is essentially a payroll tax. Nevada’s tax system, one of the most regressive in the country, will likely become more so.

Buckley has also said publicly that this tax hike won’t be much larger, if it’s larger at all, than 2003’s tax increase of $836 million.

The problem, however, is that $836 million is likely nowhere near what’s needed, assuming you want to maintain services at 2007 levels and don’t want to cut teacher salaries.

Reporter Anjeanette Damon of the Reno Gazette-Journal got her hands on a spreadsheet that showed the gap between revenue and the budget of Gov. Jim Gibbons, which he released in January, is actually $784 million.

The consensus tax increase would get you only a little past the flinty Gibbons budget, which was roundly criticized by members of both parties for its 36 percent cut in higher education and 6 percent pay cut for teachers and state workers.

Not everyone is so pessimistic. A gaming lobbyist, who asked not to be identified because he wasn’t authorized by his clients to speak, said he thinks we’ve hit bottom. He cites improvements in fuel tax revenue, which is telling for the Nevada economy because it means more goods and tourists being hauled in. By improvements, of course, he means the rates of decrease haven’t been as steep as in recent months.

Optimists also point to MGM Mirage’s decision to plow ahead with CityCenter. They must see a flicker of light at the end of the tunnel.

The lobbyist said the real deficit is about $2.4 billion. The state should get $500 million in stimulus funding, leaving Nevada $1.9 billion short. With the approved 3 percentage point increase in the room tax, plus whatever tax increase is passed, lawmakers would have to cut $1 billion.

This, it’s worth noting, is an optimistic scenario. Recent foreclosure numbers, after a brief respite, were frightening again in March, with nearly 20,000 filings. The commercial and industrial real estate market has begun its own scary descent. And maybe MGM Mirage is just making a poor business decision by moving ahead with CityCenter.

But let’s assume the optimistic forecast is correct. Democrats control the Legislature, swept into the majority with help from a presidential candidate who has offered the most ambitious progressive agenda since President Lyndon Johnson, and he’s promised to pay for some of it with a tax hike on the wealthy.

Nevada Democrats, meanwhile, will limp home, having cut teacher salaries and services for the poor, while making the tax system more regressive.

It would be like Republicans winning the majority and agreeing to a big tax increase and free needles for addicts.

A lobbyist wondered what’s the political difference between raising taxes by $800 million and $1.5 billion. Both will mean a campaign filled with negative ads attacking the legislator for raising taxes, so you may as well go for $1.5 billion. Or at least start negotiations there.

As Rahm Emanuel is fond of saying, never let a crisis go to waste. Time will tell whether Democrats should have let this one go.

Sun reporter David McGrath Schwartz contributed to this story.