Low tax rates are counterproductive

Michael B. Wixom

Wednesday, Feb. 10, 2010 | 2 a.m.

Last week the Board of Regents heard from our chancellor the devastating impacts of the governor’s proposed budget cuts (which, based on the information we have now, amount to $37 million for the current fiscal year and $110 million for the next). Those cuts are on top of the large cuts we took last year. The rhetorical excess following the governor’s announcement has become exhausting. Still, we can make some logical conclusions.

First, assumptions about taxes and economic growth have been absolutely wrong. For decades we have heard the same argument — our low taxes will attract good jobs, ensure growth and prosperity, diversify our economy, and protect our future. In fact, the past several years have been a classic case study demonstrating the fallacy of that argument.

Our taxes are low, some of the lowest in the nation. However, these tax rates have not attracted businesses as we were promised. Nevada’s 13 percent unemployment rate, one of the highest in the nation, demonstrates that the types of business attracted by such low tax rates do not provide permanent high-wage jobs. By and large they have been cyclical industries, and the jobs provided have evaporated. In fact, economists tell us that Nevada’s economy is probably even less diverse than it was 30 years ago.

Second, we have ignored the needs of businesses emerging in our rapidly changing economy — the businesses that are the key to diversifying our economy and ensuring economic growth. As explained by a recent article in Forbes, the primary concern of the businesses that we want to attract (technology and information-based businesses) is not taxes — it is education, both secondary and post-secondary.

That is why states such as Virginia, Pennsylvania and Massachusetts, which have much higher tax rates than Nevada, nonetheless attract new industries — they have invested in their educational infrastructure. On the other hand, in Nevada, while we have made some progress, we have failed to adequately invest in our educational infrastructure.

Third, these additional and extreme budget cuts exacerbate the problem — they are not the solution. We will be dismantling much of what we have built, primarily for the sake of keeping tax rates low — the low tax rates that have been an illusory promise of prosperity.

No one likes to pay taxes, and there is justifiable frustration and anger with national budget deficits and profligate federal spending. However, we often forget that in Nevada, while not always a model of perfect efficiency, spending on state services per capita is very low, nearly the lowest in the nation. If we are to sensibly discuss the issues we face, we must not let our frustration with national taxing and spending issues cause us to lose sight of the much different issues that we face here.

While the cuts seem so inevitable that it is easy to be pessimistic, this discussion must continue. Moreover, we should not allow it to be dominated by extreme positions or by vitriolic rhetoric. For the sake of our children’s future, and that of our state, it can’t be over.

Michael B. Wixom is a member of the Nevada Board of Regents, which governs the Nevada System of Higher Education.