Stop making cents
How the sales tax became a monster
Janet—not her real name—used to do her laundry at a laundromat on Rock Boulevard on Thursday evenings. She was a single mother of two, alone after separating from a husband with a serious drug problem. She chose that evening each week when there are few customers because the owner turned the coin slide on the washers so that it cost 25 cents less a load. Since she normally did three loads, it saved her 75 cents a week. She used that 75 cents carefully. It came to $39 a year.
I once mentioned Janet’s care with her dollars and cents to U.S. Sen. Harry Reid. He said, “Wow”—and talked about how she would benefit from the earned income tax credit. Reid, a millionaire when he arrived in Congress in 1983, was still capable of being awed by the difficulties low-income people face.
When the laundromat shut down, Janet found that other laundromats not only did not have that special Thursday night deal but their usual prices were higher, too.
I thought of her when I heard that the sales tax increase of 0.54 percent in ballot Question WC-1 will cost an average family of four making $75,000 a year “only” $81 a year. How many school lunches or pairs of children’s shoes would Janet have been able to pay for with half that amount?
The committee of businesspeople and other establishment figures who again selected the sales tax as the vehicle for a November 2016 ballot measure seeking more school money were not as impressed as Reid by the problems facing low-income Nevadans.
Committee Chair Shaun Carey told interviewer Sam Shad 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.”
“We can do it at a price everyone can afford,” said Reno Sparks Chamber of Commerce CEO Len Stevens earlier this year.
That was not the sentiment in Nevada for most of its history. For the first nine decades of state history, the state avoided the sales tax like leprosy. By the 1940s, it was political suicide to support one.
Then, in mid-1940s, the “boys” came marching home, and the business community leapt to exploit it.
Service in World War II was the duration of the war plus six months. If that was designed to allow for a gradual release of soldiers and sailors back into civilian life so that societal infrastructure could handle the jolt, it didn’t work. All those wartime songs about the girls they left behind were prophetic. The arrivals home hit communities, states and the federal government with a wallop, particularly when they started producing children. The baby boom was born—and born was the correct term. There was a 57 percent jump in the Nevada birthrate in the first five months of 1947.
By 1953, the impact on schools was near-emergency. Parents were banging on the doors of the capitol in Carson City demanding tax hikes. Businesspeople didn’t want to be taxed, for obvious reasons. Labor didn’t want the sales tax, because it screwed workers.
But there was a split in the labor front—leaders of the state’s teachers were pushing for a sales tax. They were doing their teacher members—whose average salary was less than $3,250—no favors, but it didn’t matter in 1953 because a governor’s veto stopped any tax hikes. That threat was removed after the 1954 election, and the 1955 Nevada Legislature imposed the state’s first sales tax—two percent.Save our schools
Labor wasn't giving up. The state AFL-CIO turned to the referendum, which allows members of the public who gather enough signatures to put a state law on the ballot for a vote of approval or disapproval.
So in 1956 the public got a direct vote on whether to retain the new tax. School forces went into action, forming a group called Save our Schools to conduct a campaign in support of the tax. They were not underfunded. With the incentive of a looming business tax if the sales tax failed, the state’s businesses ponied up dough—and so did the casinos, who knew their low taxes made them an inviting target.
It wasn’t even close—the sales tax was retained with a smashing 69 percent of the vote.
But there was a side effect of that election which got little attention at the time. Under Nevada’s referendum law, a statute that is approved by a vote of the public cannot then be amended without another vote of the public. Any future sales tax hikes would have to go to the voters.
In 1960, the Nevada Legislature commissioned a report on Nevada’s public finance systems by fiscal experts. Financing State and Local Government in Nevada, informally called the Zubrow report for its lead author, was 695 pages long. It reported that nearly all states with sales taxes adopted them in urgent conditions, as Nevada did—and that eight states let them expire when the crisis was dealt with.
Zubrow further noted that because of the gradual rate of collection of sales taxes, people tend not to realize how heavily they are being taxed. This suggested a “sucker” theory of taxation, the report said, which “has no place in the formulation of a sound tax program.”
Maybe not, but politicians were learning to love the sales tax. Property taxpayers were always complaining. Sales taxpayers never did. Legislators could hike it without political cost. And soon after the two percent sales tax was enacted, the schools and teachers were back asking for another percent. Ignoring Zubrow’s warnings, the 1963 legislature not only passed it instead of a proposed casino tax hike, but called a special election to get the public’s approval.
It was too soon to revive the “Save our Schools” slogan again, and if the 1956 retention of the two percent sales tax was not close, neither was this additional percent—67 percent of Nevadans voted against it. Like Zubrow, the public seemed to believe sales taxes should be used with caution.
In 1965, another sales tax hike was sought but failed even to make it out of the legislature. Now the casino industry was getting really alarmed. Then as now, the casino industry did not feel the lawmakers could be left to operate on their own. It’s not easy to find a scholar in public finance who supports sales taxes, but casino lobbyists found one—John F. Sly, a retired Princeton professor who chaired the New Jersey Commission on State Tax Policy and was author of Financing Education in the Public Schools. He was a sort of Johnny Appleseed of sales taxes, going around the country as a consultant, loading states like Connecticut, Oregon and Utah down with sales tax levies. (Oregon voters repealed their sales tax.) Nevada casinos hired him and brought him out to advise the legislators. The Nevada Legislature had its assignment.
After examining the Nevada situation, Sly told the legislators they needed to find a way around the referendum requirement for a public vote on sales tax hikes. It wasn’t exactly an original thought—senators and assemblymembers had given a lot of attention to finding such a loophole. But they were casino-motivated to give it another try.
A study committee headed by small counties Sen. Carl Dodge turned its attention to the problem. As an Urban Institute/Price Waterhouse study later described it, they “devised a plan to circumvent the two percent constitutional limitation through the enactment of the three statewide additions to the basic two percent rate (1967, 1969, 1981), with the proviso that these additions were local—not state—revenues.”
Basically, lawmakers created a second, separate sales tax. It provided a fig leaf that allowed the Nevada Supreme Court to say Sales Tax A required a public vote but Sales Tax B did not. At the 1967 legislature, the fig leaf was created—the Local School Support Tax (LSST) of one percent. This became known as the Nevada Plan.
The AFL-CIO prepared to take it to another referendum. At the labor group’s state convention, Gov. Paul Laxalt threatened them with a state income tax if they went ahead. In fact, there was no chance Laxalt would call for a state income tax, and there was far more likelihood of an increased gambling tax. In addition, the referendum was no-lose for labor. If the tax was rejected by voters, working people would be spared the hike. If the tax was approved, it would be effectively capped without future public votes. But Laxalt’s bluff worked, and the delegates to the labor meeting voted down the referendum effort.Hike after hike
It all showed the lengths to which state business and political leaders would go to keep the tax burden on the little guys and off the big guys.
Over the years—and supporters of WC-1 have never mentioned this, and no media entity has reported it—the sales tax has been raised five times for education:
1967 1.00 percent
Thus, in Washoe County, WC-1 would be the sixth sales tax hike for schools in 49 years—this in spite of the fact that sales is a percentage tax that produces more revenue as the population grows and the number of students increase.
As time went on and the state became more and more invested in the sales tax, the economy was changing. Recently, the sales tax has begun to lose its punch. As the state evolved, goods, which are sales taxed, have become less of a part of the economy. Services, which are not sales taxed, have grown in importance. Legislators were aware of this early on. Shortly before her death, Assemblymember Jan Evans warned that the state needed to stop “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.”
Neither education supporters or her fellow Democrats listened. As long as he chaired the Assembly Taxation Committee, Clark County Assm. Robert Price was able to stop any more sales tax hikes. His fellow Democrat—Speaker Joe Dini—forced him out and replaced him with sales tax supporter David Goldwater.
And labor was changing, too—a new generation of labor leaders joined with business in 1997 to support a sales tax hike for infrastructure needs that, in the north, enabled the casinos to get their long-demanded project of lowering the railroad tracks through Reno without paying for it with higher casino taxes and, in the south, funding for a water pipeline to feed growth—and create jobs, which brought labor on board.
As the revenue-generating potency of the sales tax on goods declines, it is hiked periodically, giving state and local governments an increasing share of a shrinking tax source. This does not seem to trouble them.
Certainly the minutes of the Nevada Legislature’s committees suggest that past Washoe County school superintendents did a poor job of bringing the approaching crisis to the attention of state lawmakers for a solution. One superintendent was reported to dislike lobbying. Others did not communicate the urgency of events.
Nor did Washoe superintendents or school district lobbyists take a hand in efforts at the legislature to extend the sales tax to services, a move that not only would have increased revenue but would have made the sales tax less regressive and made possible the lowering of the tax.
The five previous school sales tax hikes are not the only things that have been under-publicized in this campaign. Journalists have done a poor job of scrutinizing WC-1, which raises the county sales tax from 7.725 to 8.265 percent. Indeed, the upbeat spin put on most of the news stories about the ballot measure suggest journalists are cheerleading.
On July 15 (“Why a sales tax solution?”) and May 20 (“School funding: Washoe County Question 1”), KRNV News ran reports on the ballot measure that quoted only business supporters—Chamber of Commerce president Len Stevens on July 15, Economic Development Authority of Western Nevada CEO Mike Kazmierski on May 20—though opponents Jeff Church and Tracy Figler are available as critics of the measure. (KRNV and KOLO have also both used Malena Raymond as a parent interview on the tax without mentioning she is a school board candidate. In a report on whether the school district overpays administrators, KRNV did interview Church.)
The one-source July 15 report could have been produced by the WC-1 campaign. We know this because that’s how it came to our attention in the first place—it is recommended reading on the Facebook page of the PAC supporting WC-1.
A “report” on KTVN actually was produced by the WC-1 campaign. It was posted on the station’s website on Aug. 10 and though a line at the bottom reads, “The Coalition to Save Our Schools contributed to this report,” in fact the Coalition wrote the entire thing. It is basically a free ad, and we have not been able to find a similar service offered to the opponents.
KOLO ran a March 22 piece on WC-1 that basically endorsed WC-1 in the station’s voice: “The solution is to increase the sales tax from 7.725 To 8.265, giving Washoe County the highest sales tax in the state.” It also quoted chamber of commerce spokesperson Tray Abney and, for an opponent, found an unidentified resident (“said one Reno man”) who did not speak to the ballot measure itself, just to higher taxes generally, though better informed critics like Church and Figler could have spoken knowledgeably about it.
A May 31 Northern Nevada Business Weekly article quoted five supporters of WC-1 (Kazmierski, a builder and a realtor among them) but no opponents.
This is particularly unfortunate because the language of many of these one-sided stories suggest further lines of inquiry. The July 15 KRNV report, for instance, said, “The committee also liked that the half percent sales tax increase would be a shared burden between residents, businesses and visitors” (emphasis added).
There was no scrutiny of the claim. Had KRNV done some research, it would have found out that the wealthier the resident household, the smaller the impact of its sales tax payments. According to the Institute on Taxation and Economic Policy, the poorest 20 percent of Nevada families pay 6.1 percent of their income in sales tax. The wealthiest one percent of Nevada families pays six-tenths of 1 percent. That’s not sharing.
There are other approaches journalists have ignored. Some community members in meetings or reader comments have asked questions that have gone unanswered.
For instance, would STAR bonds—Sales Tax Anticipated Revenue bonds, which allow qualifying merchants to keep 75 percent of their sales taxes—eat up most of the tax increase? The enabling legislation for WC-1—Senate Bill 411, which required this election—does not seem to disallow it, and no independent legal opinion has said otherwise.
Supporters say the WC-1 hike would cost that median family $81 a year. How much do the five already-enacted sales tax hikes cost that family? We queried the Center for Regional Studies, which produced the first estimate. CRS project director Brian Bonnenfant calculated that sales taxpayers are already paying at least $419.37 a year from sales tax hikes for schools—and that doesn’t even count hikes for things like the train trench, or WC-1.
A 2014 Standard & Poor’s report on income inequality suggests that measures like WC-1 could make the problem worse. Anything that exacerbates income inequality, as WC-1 does, worsens the problems states face in generating revenues. “When the economy operates below its potential, state tax revenues tend to suffer,” the S&P report said.
The report also said that sales taxes hamper growth. Sales tax-reliant states had slower growth than income-tax dependent states. In a prepared statement, S&P analyst Gabriel Petek said, “Increasing income inequality is undermining the rate of state tax revenue growth, particularly for states reliant on sales taxes.”
Nor is inadequate journalism and an unfunded opposition the only thing keeping the public from getting a good look at both sides of the sales tax. Under the law, school district officials cannot take a position on the ballot measure. (This refers to officials like the school superintendent. As elected officials, school board members can say what they want, though they have been keeping their heads down.)
Officials have gone as far as they can, as when they have held meetings they call school overcrowding meetings instead of a neutral term like school capacity meetings. Still, they have generally done a good job of staying inside the law—almost too much. The law does not apply to public comment, yet members of the public at those meetings—including Jeff Church—have been silenced when they spoke against the provisions of WC-1.
Hard-pressed mothers in laundromats like Janet deserve a more rigorous campaign—and more rigorous reporting.