>On January 24, 2011 Governor Brian Sandoval is going to release his proposed budget for the State of Nevada and if Jon Ralston is correct then we’re going to see a document quite similar to those set out by former Governor Jim Gibbons. The budget will attempt to provide state services without increasing taxation or other revenue levels. If we have, in fact, “swept all the rooms, and cleaned out all the corners” in state government in the last few sessions of the State Legislature this is going to be one herculean task. We’ll be faced with examining some of our most closely held beliefs about taxation and revenue.
The first object that begs for some scrutiny is the notion that low rates of taxation automatically means better government. At a superficial level this might seem plausible, but it raises some serious questions. At some point we have to define “better.” If “better” means that the state government provides few, if any, public services then which services are we willing to do without? Tourism promotion? The University System? Economic Development offices? Prisons and correctional institutions? K-12 schools? Inspection of ambulatory surgical centers? Health inspections? Enforcement of clean water standards? Medical care for the poor and indigent? Services for the disabled? Mental health care clinics? Agricultural services and programs?
“Better” might not be thought of in such quantitative terms, but might be explored in more qualitative contexts. Perhaps we could offer all the services mentioned above, but with fewer people involved. However, at some juncture the piper has to get paid. For example, increasing the case-load for those handling business license applications may become counter productive. Let’s assume for the sake of the argument that it is a good idea for the state of Nevada to have business licenses in order to minimize the prospect that we become the Fly-By-Night Scam capital of the country.
If we do maintain our system for issuing business licenses, at what point do decreasing staffing levels become counter-productive in the efforts to encourage business formation? Is it when the backlog takes 2 weeks for the issuance of a license? Two months? Three months? How long does it take an entrepreneur to get frustrated and go elsewhere?
After the unfortunate events in Clark County not so long ago, it became evident (and downright scary for some people) that the standards for practices at some ambulatory surgical centers weren’t being maintained. We could still have public health inspections — but, do we have enough qualified inspectors to conduct prompt and timely reviews? Just how long can we go without inspections? One year? Five years? Ten years? The answer to this question may depend on how lucky we feel about the possibilities of outbreaks of hepatitis.
We don’t want foster children placed in unsafe environments. I’ve not heard anyone ever assert that what Nevada needs to do is to assign children to Dickensian work house orphanages. So, perhaps we’re agreed that abused or neglected children should be kept in as safe an environment as possible. Now, the question becomes how often do we conduct inspections of foster home conditions? How often do we conduct reviews of group homes? Can we “afford” inspections annually? Every two years? Every five years? Again, the question reverts to how much risk do we feel comfortable in taking.
If a local water system has a “boil order” imposed because of possible contamination from E-coli, then how long should the town or city have to wait for laboratory results on subsequent samples? Are we willing to boil water for two weeks? A month? Three months? Decreasing the number of people who work at collecting, testing, and reporting water quality samples might save money, but what is the point at which the back-log level becomes intolerable? At some point cheaper doesn’t necessarily equate to “better.”
Another question that needs to be taken seriously is what is the state of our current level of taxation? The Tax Policy Center (Brookings Institution) gives Nevada a ranking of 29th in the country in “own source revenues,” and 24th in tax collections per capita. [TPC] We need to be cautious with ranks. The ranking is determined by the methodology applied. The methodology is applied to data, and the data changes. When we don’t know the precise methodology and the data may not be current, then the rankings themselves become suspect. [CBPP] Another element that ought to be raised to into focus is that the per capita level of taxation is as much a variable in itself as it is a variable in a ranking scheme. We do know that the TPC’s calculations are heavily reliant on projections and samples. While it is generally useful to have “ranks” for state to state comparisons, we also need to be good consumers of information and calculate into our own thinking the prospect that the TPC’s ranks are based on estimations not absolutes. There is no need to dismiss the TPC’s estimations out of hand, we just need to exercise some caution in regard to their applications. There is, however, another, perhaps more important question to consider: Who is paying those taxes?
For example, if a state has an income tax then the level of state sales taxes may be reduced. Or, without a sales tax a state may depend upon income and other forms of taxation. We now need to discuss the relative tax burden in terms of who pays. In a regressive based tax scheme (sales taxes) the lower and middle classes pay a higher percentage of their income in taxes. In a progressive based tax system (income taxes) the percentage is relative to wealth. For example, the sales tax paid on a $10,000 used car will consume a higher percentage of a person’s income who is earning $35,000 per year than the percentage of a person earning $350,000 annually. In this context “tax burden” is a relative term. We need to be discussing “tax burden” not merely in generalized terms but also in terms of the equity of the tax liability itself.
There is another question implicit in the whole notion of rankings — what is the balance between state and local collections? Are the collections 5% state and 95% local? Are they 50%-50%? This does make a difference. In Nevada, where it is quite possible that the state will seek to shift the burdens of enforcement, application, and implementation to the local level — does the local government have the tax revenue resources to take on the responsibilities thus shifted?
If the local governments do not have the revenues necessary to enforce, apply, and implement public programs then the cuts cascade down from the top. If, for example, the state no longer subsidizes the inspection of foster homes or ambulatory surgical centers, or the testing and reporting of water quality standards — then does the local or county government have the revenue resources available to take on those responsibilities? If not, then it’s reasonable to conclude that what we have is “less government” but not necessarily “better government.”
There may also be a psychological element at play in our discussion of taxation. The perceived “burden” may be greater than the actual one. One may feel oppressed by taxation in general, but there’s a simple calculation that may alleviate the fears of some that they are overly burdened. During this tax filing season total up the amount of taxes paid (state and local) and divide that by your net income. (*Using one’s gross income will make the % look smaller, but this may be a distortion of the actual money available out of one’s pocket.) The result concerning state and local taxes usually surprises most people. A person can also divide the actual income tax paid (liability minus refunds, etc) by the individual net income to see what % is being paid in taxes.
When speaking of income taxes, there’s a common misconception going around that “47% of Americans aren’t paying any taxes.” The misconception is that the tax liability is unfairly burdening the wealthy of this country, and the rest of us are lazy slugs eating through the public garden. The operative terms are “federal income tax,” and it’s true that 47% of Americans had no FEDERAL INCOME tax liability — because the two economic stimulus bills signed by Presidents Bush and Obama increased the number of households qualifying for income tax credits. “Even if the discussion is restricted to federal taxes (for which the statistics are better), a vast majority of households end up paying federal taxes. Congressional Budget Office data suggests that, at most, about 10 percent of all households pay no net federal taxes. The number 10 is obviously a lot smaller than 47. ” [NYT] Once more, the discussion is clearer if we speak to a difference in the type of taxation paid not a generalized total percentage. Middle class Americans pay more in payroll taxes than upper income groups. As noted in the article cited previously, if we live to age 70 we will not get back what we paid in — however, if we can hold out until age 95 the benefits will be far greater.
What makes the calculation of state and local tax liability levels so difficult to generalize is that there can be significant differences between years and locales. In the year several people in a small community decide to purchase automobiles, sales tax revenues will obviously increase. The smaller the community the more dramatic the increase. Statewide statistics can be smoothed out by reminding ourselves that of the 2,643,085 people living in Nevada in 2009, some 1,902,834 lived in Clark County and another 414,820 lived in Washoe. That would yield approximately 87.69% of the entire population living in just two counties. However, while those two counties may pay more “in” and require more in terms of state program effort, the impact of program cuts is still statewide. Thus, the economic effect of a state layoff of a person earning $50,000 per year will be greater, proportionally, in a small community than in either Washoe or Clark.
Another issue, perhaps more ideological than pragmatic, is whether a person views expenditures as “expenses” or “investments” The argument over infrastructure spending often takes on some elements from this argument. If highways are accounted expenses, then infrastructure expenditures can easily be characterized as “too expensive.” However, if highway and transportation improvements are perceived as investments in the process of facilitating commerce, then the characterization isn’t so blatant. If children are “expenses” then accounting for schooling is “expensive,” but if we are speaking to an investment in the education of a future work force and future consumers the conversation changes tone.
If we exclude arguments from both ends of the political spectrum, (that the government should do almost nothing and the government should do almost everything) we are still left with some crucial questions about exactly what do we expect our state government to do — to be able to do — in terms of the health, safety, and economic prosperity of its citizens. Slogans and soundbites are a luxury the Silver State can’t afford at the moment, and it’s to be hoped that the members of the 76th Legislative Session won’t become enamored of their application.
Desert Beacon 