Sunday, March 29, 2009 | 2 a.m.
- Proposed bill would tax prostitution at $5 per session (3-23-2009)
- Room tax becomes law without governor's signature (3-18-2009)
- Titus to teachers: State needs long-term fix (2-19-2009)
- The hum of the Republican machine (2-15-2009)
- Democratic response: Legislature will overhaul tax structure (1-15-2009)
A family of three making $25,000 a year in Las Vegas pays about 10 percent of its income in state and local taxes.
A family of three making $150,000 a year in Las Vegas pays about 4 percent of its income in taxes.
The disparity exists because Nevada has one of the most regressive tax systems in America, according to census data and independent studies. The less Nevadans make, the more they pay as a percentage of their income.
For Nevada’s working and middle classes, struggling with layoffs and foreclosures, the situation could get worse. The Legislature will likely raise taxes to close a $2.3 billion budget deficit, and a sales tax increase is at the top of most short lists of revenue sources under consideration.
The sales tax, now 7.75 percent in Clark County, is tough on poorer people because they spend nearly everything they make. They are taxed on most of their income, except for the few exempt items such as food. Also, without the aid of good public transit, the working people spend a significant amount of their income on the gasoline tax.
The more well-to-do, on the other hand, consume only a portion of what they make. In Nevada, the rest is mostly tax free.
“Without a personal or corporate income tax, you wind up with a very regressive tax system,” said Michael Mazerov, a senior fellow for state fiscal policy at the liberal Center on Budget and Policy Priorities.
This isn’t a just liberal issue, however.
Geoffrey Lawrence, a fiscal analyst for the libertarian Nevada Policy Research Institute, said he’s no fan of regressive taxation. He said he would like to see each income group pay a roughly equal percentage of its income in taxes.
“If you have concern about regressivity, your concern should be with doing away with some taxes on lower income people,” he said.
That does not appear likely at this point. A regressive sales tax increase is in the offing because the money would flow immediately. Plus, unlike businesses and wealthier Nevadans, poor and middle-class residents have little clout in Carson City.
Assemblywoman Sheila Leslie, a Reno Democrat and vice chairwoman of the powerful Ways and Means Committee, said the regressivity of the tax structure is a concern of hers, which is why she’s pushing a net profits tax on business. She is doing it “at my peril,” she said.
A net profits tax would be progressive because it would tax shareholders of corporations, most of whom are in middle and upper income brackets.
Some tax foes argue that a business profits tax is passed on to consumers in the form of higher prices. But advocates of a business profits tax, such as the Progressive Leadership Alliance of Nevada, note that the price of goods is almost identical in neighboring Arizona and Utah, which have corporate profits taxes.
Leslie said she’s finding little support for a net profits tax in the Legislature.
State Sen. Bob Coffin, D-Las Vegas, chairman of the Senate Taxation Committee, said: “Probably fairness will come into it, but in the end we’ll have to do what we can do.”
He then made an argument for regressive taxes: “The people who benefit the most are the people at the bottom of the ladder,” he said of government services, referring to programs such as Medicaid that have been cut and could face still more cuts without a tax increase.
Elliott Parker, an economist at the University of Nevada, Reno, said economists are in broad agreement about the best form of taxation. A tax system should be broad based and have low rates so as not to artificially alter economic behavior away from productive pursuits.
In other words, he said, a 1 percent tax on everyone is better than a 10 percent tax on 10 percent of businesses, which would have everyone scurrying to get out of that 10 percent category.
So, broad-based and low rates.
But as for tax fairness?
“Fairness is in the eye of the beholder,” Parker said.