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April 15, 2014

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Are ‘small’ tax increases nickel and diming the Las Vegas economy to death?

Poor Clark County residents may be having somewhat of a taxing year.

The county hiked the gasoline tax earlier this year, water rates are likely headed for an increase, and the Clark County commission may approve a sales tax increase before the year’s out.

In each case, proponents argue the actual cost of their individual hike will be minimal enough to justify the good it will do.

But one politically ambitious official has been repeating a populist refrain for the past few months, saying the county must be conscious of the effect of multiple tax increases done in rapid succession.

“It’s not the one tax. It’s not the 10 cents on the gas or the 0.15 on the sales tax, or the $3 on the water, it’s the cumulative effect of all of these things,” said Clark County commissioner Steve Sisolak. “People who are on a very, very fixed income, it’s really, really tough for them to make ends meet, and we need to be much more aware of that and cognizant of that.”

Increasing the tax burden on senior citizens, the unemployed, the poor — and everybody else in the county, for that matter — can have a negative effect on the economy because people have less money to spend on goods and services that fuel growth.

That’s especially troubling when average private-sector wages are failing to keep up with inflation, meaning there’s no commensurate growth in income to offset the cost of these tax and fee increases.

If the tax and fee increases are large enough to force people to consume less than they otherwise would have, the economy will suffer, economists say.

So is the government nickel and diming the people of Southern Nevada into economic oblivion?

Well, here’s a rough estimation of what the tax increases may amount to:

• The fuel tax that passed this year will amount to an annual impact to the average driver in Southern Nevada of about a dime a day — or $36 a year — over the next three years, according to the Regional Transportation Commission of Southern Nevada, which had lobbied for the tax increase.

• A proposed 0.15 percent increase in the sales tax with revenues dedicated to Metro police in Clark County would equate to an additional annual tax burden of about $20 to $22 for the average household, said Guy Hobbs, president of Hobbs, Ong & Associates, Inc., a Las Vegas-based financial advisory firm.

• Between 2014 and 2017, the median monthly water bill for a small home in Clark County could jump to from $34 to $39 in 2017 under a proposed water rate increase. That would be an additional $60 a year in water costs, according to documents provided in August by the Southern Nevada Water Authority.

(For very large homes, monthly rates could jump from $306 to $331 by 2017 under the same scenario.)

The cumulative annual effect of the enacted and proposed taxes and fees likely ranges between $120 and $300 per Clark County household, ranging dramatically depending on whether or not someone drives a car, how often people buy online versus in-store, and how much water they use.

Sisolak recently gave a talk entitled: “Talking taxes: A few cents here and there. Pretty soon, you’re talking about real money.”

During the speech, he mentioned senior citizens shopping at dollar stores for groceries.

Those retired seniors on a fixed income will be getting a 1.5 percent increase in their monthly Social Security payments next year.

That’s among the smallest increases since automatic payment adjustments were adopted in 1975, largely because consumer prices haven’t increased much this year.

A 1.5 percent raises equates to $19 a month — $228 over the course of 2014.

Those local tax increases could potentially eat a sizable chunk of that Social Security cost-of-living adjustment.

“To the folks who are on such a fixed income, it’s an awful lot for the people who can least afford to pay,” Sisolak said.

But local economists note that anybody on a fixed income also has to contend with the cost of groceries, health care and other necessities.

“We’ve got bigger fish to fry,” said John Restrepo, principal at RCG Economics LLC, a Las Vegas-based financial consulting firm. “Southern Nevada is being constrained because of relatively weak job growth and even weaker wage growth when you adjust for inflation. The purchasing power of consumers is still pretty weak.”

That’s to say, not a lot of working people are getting pay hikes, and plenty of people are still out of work.

Private-sector weekly wage growth hasn’t kept pace with inflation in recent years, according to data from the state’s Department of Employment, Training and Rehabilitation.

If you haven’t had a raise since the onset of the recession in 2008, your dollar buys less today than it would in 2008 because of inflation. A dollar in 2008 has the same buying power as $1.09 does today, according to the federal Bureau of Labor Statistics.

So, something like a water rate increase hurts a little bit more for workers and retirees who haven’t had a raise because they’re spending more for other goods already.

“The frustration of looking at the overall mixed bag of pricing changes when the income side stays relatively static; it’s hard not to have an appreciation for that,” Hobbs said. “In a perfect world, your wages would rise faster than your costs, but if you’re looking at something of an equilibrium, both would rise commensurate to each other.”

The Southern Nevada economy has bright spots too.

Consumers and businesses in Clark County are still spending. Taxable sales in the county jumped 3.6 percent compared with August 2012.

Economists also argue that incremental tax increases can have a positive economic effect because of the services they pay for.

“I think the point (Sisolak) is making is a very fair one, but the other side of that point, of course, is that there are positive economic impacts to having public safety, an efficient roadway system and a reliable water source,” said Jeremy Aguero, principal analyst with Las Vegas firm Applied Analysis. “All of those things are critically important to our economy. Reasonable minds can differ to where that balance is. That’s where all of this turns, and it becomes a political issue.”

The water rate increase and another version of the sales tax increase are likely to come before the commission in November.

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