More evidence of a broken tax system

By Jon Ralston

Friday, Nov. 13, 2009 | 2 a.m.

“Virtually every state had to make tough decisions this year about where to cut and how to raise additional revenues, including through taxes or fees. But in some states, lawmakers punted the responsibility — either by asking their voters or governors to make the call, or by relying heavily on borrowing or accounting methods that put off harder decisions until later.”

— Pew Center on the States ”fiscal peril” report

Sound like anyone we know?

The Pew report, though thorough and insightful, breaks no new ground for those familiar with Nevada’s financial cataclysm. But in naming the state as one of nine besides California on the brink of a fiscal cliff, and by showing it understands the economic and political ingredients of this recipe for disaster, the nonprofit reinforces just how daunting and depressing the situation is in Nevada.

The study ranked Nevada in the middle of the pack among the 10 states, tied with Oregon as fifth most in peril. The measurements were: change in revenue, size of budget gap, change in unemployment rate, foreclosure rate, supermajority requirement for taxes and fiscal management. (The report

is online at lasvegassun.com/pewreport.)

Despite the bleak assessment of Nevada, I think the Pew folks actually were too generous because they alluded only to the two largest problems: a narrow tax base and an even narrower political leadership.

There is no better encapsulation of the former problem than this section:

“Nevada is one of five states without a personal or corporate income tax, leaving state government to rely largely on the tax dollars it collects from now-shrinking gaming and sales to finance most services. Among those services, public education and long-term health care will continue to vex policymakers because much of the growth in Nevada’s population during the past 20 years was driven by people under 6 and over 65.

“Increases in the cost of corrections, Medicaid and public employee pension plans also are challenging. The Legislature has diverted unprecedented amounts of local government revenue to balance the state budget ...”

This thin tax base has been miraculously unearthed, like some lost ark and with concomitant wonder, by every study to date and will be again by the incipient Complete Waste of Time interim endeavor. The Pew report mentioned the dependence on gaming and sales, but no state is captive to the whims of other state economies as Nevada — if the tourists don’t come, or come and don’t spend much money, the state budget is in a shambles. And if the housing boom is busted and commercial real estate is moribund, construction that fuels the sales tax revenue is nonexistent. This is unsustainable — as a looming $2 billion to $3 billion hole come 2011 attests.

The Simplistic Party will say the debate is designed to reach one conclusion: raising taxes. It’s not. It’s about a spirited colloquy about whether the unquestionably narrow tax base can sustain the state, even for basic service levels, and whether it needs to be expanded out of necessity or to enhance service levels.

That brings us to the other determinative factor mentioned but not counted in the score by the Pew analysts — and that is the enduring lack of political will, aka leadership. The line about relying on “borrowing or accounting methods” is a euphemism for the transparent gimmickry — e.g., one-time stimulus cash and sunsetted taxes — adopted by lawmakers and generally rubber-stamped (and occasionally vetoed) by governors who have the same goal as the Gang of 63: Live to abdicate responsibility another day.

“Putting off harder decisions until later” ought to be emblazoned on the Legislative Building. And later never comes.

I have not heard one of the no-new-taxes-ever-never-whatsoever crowd present a detailed plan for how to deal with the short- and long-term budget crises — just saying “no” is easier, and more appealing to benighted voters. Nor have I heard one lawmaker or gubernatorial contender present any plan to deal with the crises in a thoughtful way — worse, most will use the Last-Great-Really-We-Mean-It-This-Time tax study as cover for not taking a position.

Neither side can assert the moral high ground until it presents details — not that morality has ever played a large role in Carson City. And, as I have argued for years, it doesn’t have to be — and shouldn’t be — done all at once.

It’s a two-step process. First, fix the system without raising taxes by broadening the tax structure but reducing noisome fees. (Anyone register a car lately?) Then, rigorously debate what services and at what levels government should be funding and tax accordingly. The action should be swift, the discussion robust.

Sound like anyone we know?

I didn’t think so.