No fair

Nevada keeping beating up on workers

Gov. Brian Sandoval has proposed the latest retooling of Nevada’s chronically unstable tax structure

Gov. Brian Sandoval has proposed the latest retooling of Nevada’s chronically unstable tax structure


The Tax Foundation study of Nevada's tax system can be read at
The Price Waterhouse/Urban Institute study of the same topic is available at the Washoe County Library under the title A Fiscal Agenda for Nevada.

The members of the budget committees of the Nevada Legislature filed in to their seats in room 4100 to start scrutinizing the governor’s recommended budget.

Technically, the 2015 legislature didn't begin until Feb. 2, but since a 120-day limit was imposed, the lawmakers have never waited for the actual start. The difference is more than trivial. It says a lot about how politics works. Pandering to the public’s suspicion of the legislature, some lawmakers got a constitutional amendment placed on the ballot in 1998 to limit the length of legislatures. They swore to the public that business could be done in 120 days, though in fact it could not be done well in that time. As soon as the voters approved the change, the legislators started cheating on it to make it work, beginning budget hearings two weeks in advance of the actual legislature—and usually meeting in special session after the 120-day session, too. It was one of the small, public-be-damned deceits on which politics thrives.

There were other unintended consequences, too. The shortened legislatures mean it is far more difficult to deal with broad or conceptual issues. Instead, legislatures became maintenance affairs. In addition, the lawmakers became heavily dependent on staffers, lobbyists and the governor’s administration. There’s little time for anything else.

So in reshaping Nevada’s tax system, the power is going to be less with the legislators than with those who have their ears.

Cautionary tale

Stop me if you’ve heard this one.

A candidate runs for governor on a no-new-taxes pledge. He wins. In the next four years, the state’s problems are exacerbated by events outside and inside Nevada, but the legislature’s ability to deal with them are stymied by the governor’s veto. Two legislatures pass as those problems get worse, held hostage by the governor’s tax pledge. Then, finally, the governor runs for reelection without repeating that pledge. He is reelected, freeing him from his anti-tax posture. Four years are lost.

That was Charles Russell, governor of Nevada, elected in 1950, a time when it was apparent that the baby boom was headed right at the state’s schools. The troops came home from World War II mostly in 1946. The Nevada birthrate jumped 57 percent in the first five months of 1947. With Russell’s veto threatening, nothing was done at the 1951 or 1953 Legislatures. A state that always had low taxes suddenly could not pay for desperately needed school construction and the cost of educating the largest classes in history.

With angry parents demanding tax increases, the 1955 legislature was finally able to get to work on the problem, after Russell won reelection.

Brian Sandoval did the same thing. The state struggled uncomfortably during his first term, watching adjoining states leap past Nevada in education. Four years were lost. Finally, he was freed from his 2010 pledge with a 2014 reelection.

For decades, legislators, scholars and activists have complained about Nevada’s regressive tax structure. Studies confirmed the unfairness. Now, a major overhaul of the tax system is at hand, with no plans to address unfairness. None. Again.

The complaints accelerated after the state sales tax nearly doubled in 1981 and became a major revenue source for state government, giving the state a soak-the-poor revenue base. And after the deficiencies of the 1981 tax shift from property to sales tax reliance was demonstrated, the reaction of most Nevada governors has been to recommend regular quilts of new tax combinations to get the state through the next few years. Patch, patch, patch.

Few people tried to solve the problem. Republican Assemblymember Bob Thomas of Carson City did try to get the sales tax extended to services to make it fairer and more stable. Democratic Assemblymember Bob Price stopped any more sales tax hikes on goods in his Taxation Committee—there was growing recognition that Nevada was shifting to a service- rather than a goods-based economy. Services are exempt from the Nevada sales tax. Nevadans’ proportional purchases of goods compared with services have declined by about 30 percent in recent years.

As the take from taxing goods declined, the state kept wanting to return to the sales tax well. By increasing sales taxes only on goods, Nevada was getting a growing share of a dwindling tax, making the regressiveness worse, and many interest groups kept going along with it. In the 1990s, organized labor—which had been successful in stopping creation of sales taxes in Nevada in the early 1950s—was partnering with business to pass sales tax increases for infrastructure purposes (in Washoe County, this included lowering the railroad tracks into a trench at the demand of casinos that didn’t want to pay for it). Democratic Assembly Speaker Joe Dini forced fellow Democrat Price out of the Taxation chair to accommodate higher sales taxes on goods.

Indeed, the best indication of how tax fairness has disappeared from the state’s political radar is the fact that Democrats have become a part of the problem of Nevada’s tax regressiveness. One Democrat, the late Assemblymember Jan Evans, warned at her last Legislature in 1999 that the state faced an ongoing problem of “placing high reliance on … sales tax. That means durable goods when we know in the economy the real growth is not on durable goods but on services.” Her fellow Democrats did not listen—not, at least, in the sense of doing anything about it. They never even introduced legislation to force Republicans to cast votes on the record.

Democratic Gov. Richard Bryan (1983-1989) promised to reduce the sale tax on goods, but never tried.

Democrat Harry Mortensen’s website reads, “Nevada has one of the most regressive tax systems (including fees) in the U.S., meaning those who can least afford it are those with the largest tax burden.” But in his 12 years in the legislature, he never introduced legislation to correct the problem.

In 2010, when Assembly Republican floor leader Pete Goicoechea of Lander County called for bringing back a sales tax on food, few Democrats even disagreed with him. “I can’t explain it,” said political analyst Fred Lokken. “It seems like a gift from God [for Democrats].”

In 2011, a proposed tax plan by Democratic legislative leaders was so deaf to equity that Citizens for Tax Justice analyst Richard Phillips wrote, “Even if the Democratic plan and e-commerce legislation is adopted, Nevada’s tax system will remain highly regressive and incapable of meeting the state’s fiscal needs in the years to come.”

Two years ago, Sen. Moises (Mo) Denis talked about how regressive Nevada’s tax system is. He introduced no legislation to change it. (A bill providing for a study of service taxes was introduced in the Senate—no one put his or her name on it, so it got a committee introduction—but it failed to pass.)

Since she stepped down as state treasurer last month, Democrat Kate Marshall has been co-authoring a series of seven essays on the state’s fiscal affairs. Of those which have thus far been released, none contain the terms fairness or equity. One mentions the poor, but only in relation to whether school districts should be reconfigured.

In fact, some Democrats seem indifferent to the issue, to the point that they are not up to speed on it. When extending the sales tax to services was discussed in 2013, Democratic floor leader Denis asked, “How regressive is this?”

Service tax

When the sales tax is applied to goods, it is normally regressive—that is, it falls more heavily on low income people than those at the top. As a 1988 Urban Institute/Price Waterhouse study of Nevada’s tax system noted, “Of the portion of the sales tax that is borne by Nevada resident consumers, the distribution is clearly regressive. 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.”

However, when the sales tax is applied to services, it is normally progressive. As John W. Swain and B.J. Reed wrote in their book Budgeting for Public Managers, “Sales taxes would be more progressive and more efficient if they were to include services as well as retail sales; however, many of those who provide services, such as lawyers, advertising companies, and accountants, strongly resist attempts to broaden the tax base.”

The Center on Budget and Policy Priorities: “Public finance economists and other tax experts have been urging states for decades to include more services in the sales tax base. … Expanding the taxation of services will make the sales tax fairer.”

This is not well understood in Nevada, and certainly not by Nevada Democrats and liberals. During the 2013 Nevada Legislature, when Republican legislator Michael Roberson and Democratic legislator Marilyn Kirkpatrick spoke in support of a service tax (that was never introduced as legislation), their progressive proposal was denounced in an anonymous essay on a website called Nevada Progressive.

To be sure, a service tax can be made regressive. Douglas County Republican Assemblymember Lou Bergevin once drafted a service tax bill that included things like car repairs while excluding stock brokerages. It was almost a contradiction in terms—a regressive service tax. But that is not the normal way of using the device. At the same time, given the Democrats’ lassitude on tax equity, it’s far from certain they would try to stop such a formulation.

Sandoval and studies

For 35 years, legislators have heard complaints about Nevada’s regressive tax system. Deafness was their preferred reaction.


Last month, Gov. Brian Sandoval released his long awaited tax plan:

• A gross receipts tax to raise an estimated $437.5 million and repeal of an annual $200 business license fee.

• Slot route operators running 500 or more slots or who are bringing in $10 million or more would be subject to a gross revenue tax, such as is already paid by casinos.

• The gross tax already paid by casinos would be extended to other amenities they offer, like food and entertainment.

• Increase of the tax on a pack of cigarettes from 80 cents to $1.20.

•The mining payroll tax will be increased by 0.83 percent.

• Taxes originally enacted temporarily will be made permanent.

Sandoval is not recommending any increase in casino taxes and only a small increase on mining corporations.

It is, in other words, exactly what the legislature has been cranking out at the request of governors for more than three decades—another patchwork to get the state a little further down the road. There is no call for repeal of earlier, peculiar patches that clog the statutes, other than the $200 fee.

In his message to the legislature, Gov. Sandoval never used the term equity or any variant to describe his tax program. He did describe it as “the fairest solution” but did not explain why. His business tax includes a graduated scale, though that would barely move the needle on Nevada’s overall regressiveness.

At that, he did better than the Democrats. In the Democratic response to Sandoval’s message, Assemblymember Marilyn Kirkpatrick said workers “deserve good wages and fair treatment, and a tax system that works for them”—but she didn’t propose one, announce one would be introduced, or even spell out how the system could be made fairer.

On Dec. 14, the Las Vegas Review-Journal editorialized, “Over the years, the state has seen too many tax studies to count, all of which have been considered by the Nevada Legislature to varying degrees, then thrown into desk drawers and onto top shelves to collect dust.” That’s not the case. The state has had great success with studies it has commissioned. Financing State and Local Government in Nevada, a 1960 study, was very influential, with legislators acting on its recommendations and writing tax laws that governed the state for two decades. The Peabody School Study of 1954, the Lybrand Report in 1966 and other reports have been very helpful to the state (though legislators rejected most Lybrand recommendations).

It is when the state did not study problems in advance, or rejected study recommendations, that the state really got in trouble. This was emphatically true in 1981, when a governor—Robert List—proposed fundamental tax changes in 1981 without an independent study of the problem first, just as Sandoval is doing. Four state budget crises—one each decade—have resulted from that single 1981 change in tax law.

List proposed a near-doubling of the state sales tax and a shift away from reliance on the property tax, a change many Democrats supported (“It happens,” RN&R, May 23, 2013). The 1960 study had recommended against ever relying any more heavily on the sales tax, which was then 2 percent. This was partly because it is regressive—it has been made somewhat less regressive by being removed from food and other items like prosthetic devices—and partly because, the report said, the sales tax is what it called a “sucker” tax. In other words, the rate of collection is so gradual that taxpayers have no idea how heavily they are being taxed. The authors of the report seem not to have realized that this feature of the sales tax made it politically attractive, because they wrote that such a factor “has no place in the formulation of a sound tax program.” The state portion of the sales tax is now 6.85 percent, one of the highest in the nation.

The Review-Journal was really referencing one tax study that was never used. In 1988, the legislature commissioned a study of Nevada taxation from Price Waterhouse and the Urban Institute. It was delivered after that year’s election.

It was, and is, an excellent study, telling legislators many things they did not want to hear but badly needed to know. But it made the mistake of telling the legislators the state had some time to deal with its problems. Given a choice between now and later, the 1989 legislature chose to do nothing. Turnover and lack of institutional memory meant that later legislators did not think to take up the task.


Last year, the Las Vegas Metro Chamber of Commerce commissioned the Tax Foundation in D.C. to study the Nevada tax system. The Foundation is a very conservative organization funded by sources like ExxonMobil and the Kochs.

On Dec. 8, more than a month before the governor presented his tax plan, the Tax Foundation report was released. It contained recommendations no one expected.

With Nevada’s governor and legislators poised to raise taxes for education, the Foundation urged they do no such thing. In direct contrast with Sandoval’s new patchwork, the Foundation called for the state to first put its tax structure in order—the same comprehensive task the lawmakers and governors had been avoiding for decades. The state needs to broaden its tax base and clean up its odd tax statutes, the Foundation said.

“Nevada should consider fixing what is broken with the current tax system instead of pursuing a brand-new tax to layer on top of the narrowly based, complex existing taxes,” the report read.

The biggest surprise, however, was that it recommended that when the time came for rebuilding the tax structure, the sales tax should be extended to services.

“As services grow to be an ever larger share of the economy, the sales tax becomes increasingly volatile and inadequate as it applies primarily to goods,” reads the report, which also calls for reducing the sales tax on goods.

It further noted, “Service industries make up 82.6 percent of the state’s private sector economy, while goods production is only 17.4 percent.”

The report was also useful for bringing a set of fresh outside eyes to years of piling crazy quilts on top of each other, giving the state a tax system like no other. It’s easy to imagine the analysts showing each other features they’d never seen before. “A number of elements of the tax system exist only in Nevada, and those in particular should be scrutinized,” they wrote.

Another example was in scrutiny of the state’s live entertainment tax (LET), which has received considerable attention recently. The fingerprints of lobbyists are all over the LET law. The Foundation called it “complicated and arbitrary … riddled with exemptions.” There are eight instances of live entertainment, such as live music in lounges, that are legally excluded from the definition of live entertainment. There are 14 exemptions of various types, such as outdoor concerts, minor league baseball teams, and live casino entertainment provided in closed meetings or conventions.

The LET is also regressive, which seemed to take the analysts by surprise, and they called for eliminating the LET and bringing live entertainment and its accompaniments under the sales tax: “Unusually, the current tax falls more heavily on modestly sized venues than large ones, a regressive feature that would be eliminated with inclusion in the sales tax base. All food, beverages and merchandise sold at events that charge admission should also only be subject to the sales tax.”

In the weeks ahead, as legislators work, Nevadans should beware of the term “reform.” It suggests improvement, a value judgment. One person’s reform is another’s burden. Journalists almost inevitably label as “reform” proposals that may only be change, in effect taking sides. In some cases, “reform” is applied to plans whose details have not even been released—KSNV News: “Democrats call for broad-based tax reform;” Las Vegas Review-Journal: “Roberson: State Senate will tackle tax reform.”

While it’s true that any change is technically a reform, the first term is neutral while the second is loaded. The politicians who can get reporters to define their plans as reform are halfway home.

Nevadans may well wonder why one of the state’s biggest and most familiar problems could be ignored so assiduously for decades, like an elephant in the room. In the end, the explanation comes down to a rule of thumb for politicians: Offending the affluent comes with consequences. Offending the working poor does not.