The Nevada Legislature has had several chances to tackle the state’s tax structure problems, but no fundamental changes have been forthcoming. So, Nevada remains dependent on the highly regressive sales tax and the equally unstable gaming tax revenues. Both of these taxes are susceptible to recessions, i.e. when there is a downturn in the overall economy there will be a decline in revenues — just when citizens are in greatest need of assistance and local governments find themselves under the highest pressures to provide services. Now there is an initiative petition afloat to adopt a Texas-Style franchise tax on gross business receipts. [Las Vegas Sun full story]
There will be objections, some of which are perfectly predictable. The most common complaint will likely be “You can’t raise taxes during a recession.” This statement is the companion piece to “You can’t raise taxes during periods of prosperity without jeopardizing the economic growth.” The Grover Norquist Brigade will not be pleased, but then no one thought they would be.
If we move beyond the No-Tax, or The We Want Something For Nothing, Crowd the questions might be focused more productively on how Nevada taxes can be structured to raise revenue while relieving the burden on small independent businesses and families. The big box retailers have been successful beating back attempts to tax their operations, and the resulting modified business tax reflects a win for the giant national franchises and a relative loss (or greater burden for) smaller independently owned businesses.
It isn’t like the big box retailers need all that much help, and that the locally owned independent businesses couldn’t use a break. Target Inc. seems to be weathering the Main Street recession reasonably well. It is 88.10% owned by institutional investors, with an overall profit margin of 4.31% and an operating margin of 7.80%. Wal-Mart, 48% of which is held by “insiders,” runs a profit margin of 3.77% and an operating margin of 5.94%. Forbes reports that six members of the Walton family have a personal net worth more than that of 30% of all Americans. Wal-Mart CEO Michael Duke has compensation reported at $5.6 million per year. These are hardly numbers which would apply to a local service station/garage owner, or a locally owned furniture or grocery store.
When a proposal for a gross receipts tax was floated in 2003 the conservative position was that Nevada should be vigorously seeking to attract more big box national retailers like Wal-Mart and Target. When a floor was suggested for the application of the GRT, the response was:
Nevertheless, businesses grossing less than $350,000 annually are not the large employers paying high salaries that Nevada should be primarily cultivating. The Silver State is a natural prospective home for large, national employers of highly paid workers,especially those in intangible industries such as finance, intellectual property, investment management and the creative side of high tech. These firms can locate themselves wherever the lifestyle and the tax climate are attractive. [NPRI pdf]
Curiously omitted from the list were the big box retailers whose presence in a community can wipe out locally owned retail businesses in a heart beat. The average wage for a Wal-Mart employee ranges from $10 to $12 per hour. [Jobs.About] Not exactly the “large employer paying high salaries,” touted in the NPRI piece.
The other arguments against a gross receipts tax read like a litany of Norquistian Ideology. Taxes depress prosperity. Taxes have a multiplier effect. Taxes are passed along to consumers. Taxes drive away business. [NPRI pdf] If low taxation rates are the primary ingredient in economic prosperity, then given Nevada’s extremely low taxation climate we ought to be a bustling exemplar of enterprise. Instead, we have one of the highest rates of unemployment in the country.
All taxation has a multiplier effect — the question ought to be “So What?” All the businesses to whom a tax is applicable are functioning in the state, and expect state services to be provided to their owners, managers, and employees.
The argument about taxation increases driving away business is highly dubious. Again, if the taxation rate is the key component of a business location plan — don’t invest in the business. This means that the enterprise has not given priority to other, more pertinent, elements such as infrastructure support, local research institution relationships, market availability, resource availability, transportation needs, and work force compatibility, and therefore is probably doomed.
The Paperwork Argument is always interesting. Anti-tax advocates have a standing argument that any increase in taxation, or any modification of the tax structure will automatically require increased collection expenses and increased costs for accountancy. What is not as often clarified is whether the increased collection costs are offset by increased revenue collections themselves. Secondly, the argument becomes circular when the anti-tax argument addresses the accountancy issue: Doesn’t accountancy (as in the hiring of accountants, or accounting firms) count as one of those “high paying employers” we’d want to attract and cultivate in local communities?
Anti-taxation forces often cite the “negative multiplier” effects of taxation modification, but seem not to observe the other side of the coin. If a hypothetical Big Firm Inc. paid out a little more to its bookkeepers (the bookkeepers could spend more money hence creating more demand), and then hired an accounting firm to prepare its tax filings (creating a new client for the accounting firm, expanding that business, and thereby creating more demand), could not the multiplier effect also be a “positive?”
At this juncture one could posit that the negative effects of increased or revised taxation isn’t really an economic question but a finance one. That which might impinge on the stock price (slightly lower profits reported quarterly) is the bete noir of the anti-tax, pro-financialist advocates.
Nevada’s also prone to performances of the Clash of the Titans, i.e. large business interests each claiming IT is the primary source of state revenue. Gaming thinks it pays enough, Retailing thinks Gaming should continue to support the state coffers, and both believe that average Nevadans living on a median wage of about $50,000 annually should be supporting them both.
The modification of the state’s business tax structure is overdue, and with this latest introduction of the subject it’s time to have an adult discussion about how to most equitably fund the state services everyone — from CEO to stocker — deserves.