Broaden revenue base by taxing services
“Now is the time when men work quietly in the fields and women weep in the kitchen. The Legislature is in session and no man’s property is safe.”
Daniel Webster (1782-1852) Quote courtesy of the Nevada Journal
Have you noticed tax increase “trial balloons” being leaked from high places while at the same time we’re being reassured that no such things are being considered? Which, of course, means they are. I wouldn’t be surprised to see some new poll sponsored by the teachers’ union or the university system claiming that we Nevada citizens want a tax increase because we have guilty consciences over the pitiful state of public education.
Others, however, are saying we need property tax exemptions for old folks on fixed incomes so they won’t have to worry about losing their homes. I swear, I don’t know why people take dumb pills when they become politicians or staff advisers, but they do. Since when is it a given that any class of citizen has a right to own a home in perpetuity? A home is an asset and should be considered like one’s obligations.
However, I do think that property taxes are unquestionably the least fair of all taxes and should never be the cause of anybody losing his or her home. We’ve all paid federal income taxes on the money which paid for our homes, making property taxes a subtle form of double taxation. It should be abolished!
Now, having said that, let’s examine one of the reasons why we “apathetic” citizens don’t trust government. It’s because politicians create divisiveness between us citizens by treating certain groups of citizens better than others, always under the guise of altruism but more often to buy votes from influential groups (like senior citizens) at the expense of the rest of us.
Do you have any idea how many federal, state and local tax exemptions have been bestowed upon chosen classes of people? You’d be surprised. Naturally, the rest of us resent these special deals. They’re divisive. A tax is a tax is a tax. It should apply to all of us or none.
Now, looking at Nevada’s tax base, except for unfair “special” exemptions, sales and gaming taxes probably represent among the best deals anywhere for the average citizen. But the major problem is our tax base is too narrow, making it extremely sensitive to minor fluctuations in our economy. The broader the tax base, the less susceptible tax revenues are to economic downturns, thus making budget forecasting more accurate.
There are three ways to broaden the tax base while decreasing sales tax rates. And I’m not talking about a state income tax, either: (1) Eliminate all tax exemptions. (2) Add food back into our sales tax base. There is no justification for not taxing food. We have safety nets in place to feed those who need such help, and the rest of us can afford it. 3) Reduce our sales tax rate to 3 percent across the board and add services onto the sales tax roles. We would then be sales-taxing goods, food and services, all at a new rate of 3 percent. Believe me, we can broaden our sales tax base by 100 percent and still remain revenue neutral.
This is not a radical idea. The states of Hawaii and Washington (and three others which I’ve forgotten) tax services (labor) at the same rate as goods. However, here again, the key to success with this program is not to exempt some service providers (such as lawyers, accountants, engineers, architects and contractors) just because they’re influential and don’t want to be tax collectors. For obvious reasons, the only two services which should be exempted are medical and funeral. Professional services are big-ticket items mostly utilized by corporations and would yield substantial sales tax revenues. Sales tax on services is far from regressive.
In the 1980s when I was your District 37 assemblyman, our Legislative Counsel Bureau ran in-depth studies on sales tax on services and found that by adding services (but not food) into the sales tax base, and then by reducing the sales tax rate by about 40 percent, we would be revenue neutral. But the sales tax base would have been broadened by about 60 percent, thus helping to insulate tax revenues from many downturns in sales and gaming.
What about gaming taxes? Raising gaming taxes would be goring the other guy’s ox and wouldn’t cost us a nickel. But from a business point of view, looking at the long-term big picture, I ask you, is it sound judgment to put our tourist-gaming industry at a competitive profit disadvantage at a time when out-of-state Indian gaming is already causing a slowdown in northern Nevada, thus contributing to our tax revenue shortfall?
It seems to me that now is a time when our tourism-gaming industry needs to retain available profits to reinvest in refurbished properties and increased promotional activities aimed at bringing back tourist and convention visitors year after year. New attractions and continuous upgrading are expensive and must be done to attract repeat visitors over and over again.
I can guarantee you that if my three recommendations are implemented, two things will happen. (1) Everybody in Nevada will be a little bit angry indicating fairness all around, and (2) we’ll solve our pesky revenue projection problems for the next 25 years! It’s going to be fun seeing if our politicians can support a statesmanlike, permanent solution or if it’s going to be Band-aids as usual.
Bob Thomas is a Carson City businessman, local curmudgeon and former member of the Carson City School Board and Nevada State Assembly.
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