Food repeal didn’t cleanse the sales tax
Since our cover story on the sales tax, some supporters of county ballot Question WC-1 have been claiming that removal of the sale tax from food in 1979 also removed the regressiveness from that tax. The morning our story appeared, in fact, WC-1 publicist Alex Bybee sent us a message that included, “And, in Nevada, food and medicine are exempt.”
The sample ballot argument for WC-1includes the information that the sales tax “doesn’t [apply to] prescription drugs, food from the grocery store or gasoline.”
Former Sparks city manager Shaun Carey, who chaired the committee that selected the sales tax as the vehicle to raise school infrastructure money, said on Nevada Newsmakers that the sales tax “is not as regressive as the label that people often apply. It does not apply to food unless you are in a restaurant. The greatest cost to a person is actually when they buy clothes.”
A letter to the editor in this edition offers similar information.
This claim has been common since the 1979 special election in which Nevadans voted to remove the sales tax from food. When she ran for governor in 2006, Democrat Dina Titus told us, “Well, sales tax nature [is] regressive, but what makes it acceptable here is that we have exemptions for food and medicine and such a large percentage of the sales tax is paid by tourists, so that’s why there is a willingness to pay sales tax when there is, say, not a willingness to pay more property tax.”
That 1979 ballot measure passed with a 79 percent majority. It was a change that was opposed in the legislature by the business community, by the way, and legislators approved putting it on the ballot only when supporters nearly got the signatures to place the issue on the ballot by initiative petition.
However, a report commissioned by the Nevada Legislature in 1988 and produced by Price Waterhouse and the Urban Institute said the state’s tax structure remains one of the most regressive in the nation, in spite of elimination of the sales taxes on food in 1979 and prosthetic limbs in 1970.
“Of the portion of the sales tax that is borne by Nevada resident consumers, the distribution is clearly regressive,” the report said. “That is, the burden increases as family incomes decrease. The fact that there are other regressively distributed taxes and virtually no progressively distributed levies makes it among the most vertically unfair in the nation.”
And even if one uses the “Save our Schools” campaign’s own figures, only 15 percent of the sales tax is paid by tourists.
In addition, Nevada finishes just out of the “terrible top 10” list of the Institute on Taxation and Economic Policy’s assessment of overall fairness in state tax systems. Nevada ranks the 13th most unfair state and local tax system in the country.
A policy paper by the Institute says Nevada exemptions from the sales tax “are poorly targeted. The poorest 40 percent of taxpayers typically receive only about 25 percent of the benefit from exempting groceries. The rest goes to wealthier taxpayers for whom sales taxes on food are not especially burdensome.”
Actually, the state’s exemptions are not poorly targeted, because they were never targeted at all. The Nevada Legislature has never tried to develop any kind of equity strategy in taxation or for the state’s tax system. It has reacted to various pressure groups and that’s about it.
In November, Nevada voters will have an opportunity to remove the sales tax from medical gear, mobility-enhancing devices and oxygen equipment. It is designated Question 4. And Washoe voters will have a chance to increase the sales tax to pay for school infrastructure and repair.
As the Price Waterhouse/Urban Institute report and other studies have noted, it is not just the sales tax in Nevada that is unfair. The state’s tax system, taken as a whole, is inequitable, too. But the sales tax is one that is often within the public’s ability to affect directly because some sales tax hikes go on the ballot.
Additional assessments of Nevada tax equity since the 1979 exemption of food:
1991 Citizens for Tax Justice released a list of states that taxed the poorest 20 percent at three to five times the rates paid by the richest one percent, plus middle-income families at two to three times the rate applied to the richest families. Nevada led the list. In addition, Nevada was one of seven states that had recently cut taxes on the rich while raising taxes on lower income groups. Nevada, Wyoming and Alaska were listed as having the lowest taxes on the rich.
1998 D. Dowd Muska/Nevada Policy Research Institute: “Silver State legislators and county commissioners should be aware of how New York City’s tax-free experiments have given relief to poor families and a boost to merchants. (By slashing its sales tax or reducing the number of items which are taxable, Nevada could draw shoppers from California and Arizona.) Nevada’s sales tax penalizes those with lower incomes, significantly saps the purchasing power of all consumers and stifles economic activity within the state. It is unfortunate that elected officials do not seem to grasp this reality. The question regarding Nevada’s sales tax is not how much it should be raised, but how much it should be cut.”
1999 Chico State analyst Robert Morin: Nevada is characterized “by low levels of service provision, consistent under-estimation of revenues, over-reliance on two primary sources of revenue (sales and gaming taxes), and the potential for fiscal problems linked to the state’s population growth.”
2002 Neon Metropolis by Hal Rothman: “Regressive taxation meant that the state sloughed off responsibility and handed it over to the counties. … Even in the best of times, government in Nevada is ineffectual and parsimonious, a handmaiden to power. The state’s odd tax structure, simultaneously invisible and powerfully regressive, is one of the primary culprits. … Nevada’s notoriously regressive tax system is likely to stay that way.”
2003 Governing magazine reported that Nevada’s tax system “hits low income residents hardest.”
2006 Keystone Research Center: “In Nevada, the very highest income residents are getting richer: the top one percent of taxpayers—those who earned average income of $1.5 billion in 2012—now get nearly a third of all the state’s income. They also pay a tiny fraction of their income in taxes—only about one fifth the rate of the middle class. It these high income earners paid taxes at the same rate as the middle class, Nevada could solve many of its budget problems—raising $857 million per year for education, infrastructure, health care, pensions and job creation.”
2006 “Taxation Burden and Fairness in Nevada” by Bernard Malamud and Marc Hechter (Center for Democratic Culture, University of Nevada, Las Vegas): “The higher the hill of the curve, the disproportionately more in taxes does a low income family pay and the more regressive is the tax. Nevada’s tax structure is more regressive than the tax structures of most states. … Nevada taxes are more regressive than state and local taxes in the United States as a whole.”
2011 Census figures indicated the tax rate in Nevada for people making $25,000 is about twice as high as for those making $150,000.