Issues

Nevada businesses would
do well under tax initiative

TASC to include improvements over Colorado plan

 

By Steven Miller

BusinessNevada

The idea of bringing Colorado-style taxpayer protections to the Silver State pleases most Nevada businesspeople.

When they learn how successfully Colorado’s Taxpayer Bill of Rights (TABOR) has kept state government growth in check, or they learn that personal income growth in Colorado since TABOR outstripped almost every other state, the common reaction is to say something like, “Great!—Where do I sign up?”

Other business people, however, are a little more cautious. They want to know exactly how a key feature of the Colorado plan—rebating the surplus revenues that come in above the constitutional limit—would work in Nevada.

Many of these businessmen and women point to the behavior of legislative Democrats earlier this year when Nevada Governor Kenny Guinn proposed returning to taxpayers $300 million from massive state revenue surpluses. Under Guinn’s original plan, vehicle owners—the largest group in state databases—would have received a rebate proportional to the registration fees each owner had paid into state coffers in 2004.

Democrats, however, objected.  They demanded that other, political, criteria be used, so that more of the funds could be channeled to interest groups active in Nevada elections. In the Assembly, Democrats insisted that seniors who had paid no vehicle registration fees should also receive the rebates. In the State Senate, Sen. Bob Coffin told news reporters that the surplus revenues should be used to fund his scheme for bonuses for Nevadans in the military. Sen. Mike Schneider wanted millions put into “community projects” to “restore landmarks” and “create jobs.” While Senate Minority Leader Dina Titus never announced specific alternatives, she condemned as “inequitable” the idea of paying the rebates out in proportion to the registration fees that individual and corporate citizens of Nevada had paid in.

Revealingly, both Titus and Coffin announced more than once that Guinn’s proportional plan was objectionable because it would return “the most money to businesses”—as though some cosmic priciple obviously disqualifies people engaged in business enterprises from equitable treatment under the law.

In the legislation that Nevada lawmakers eventually passed and the governor signed, Assembly and Senate Democrats successfully imposed the principle that they could “spend” tax rebates, just like other tax dollars, for purposes of self-interested economic-redistribution politics.

For businesses that pay substantial taxes, such behavior by elected representatives raises a troubling question: Could a Colorado-style TABOR amendment in Nevada lead to a situation where businesses are taxed at the same or even higher rates—simply to allow to grandstanding politicians to take tax revenue contributed by business and redistribute it to special interest groups as rebates?

The answer is no, say sources close to the committee drafting the most prominent taxpayer protection measure intended for the Silver State’s 2006 ballot. A member of the TASC Force for Nevada—TASC standing for Tax and Spending Control—told BusinessNevada that drafters have settled in principle on an approach suggested by the American Legislative Exchange Council (ALEC), the nation's largest bipartisan, individual membership association of state legislators.

Under this approach, the constitution would require that rebates go back to the taxpayers who paid 1) the state ad valorem property taxes, 2) state sales taxes, 3) payroll taxes or 4) other excise taxes on a basis proportional to the manner and county in which such taxes were first collected from taxpayers.

One of the main criticisms of Colorado’s Taxpayer Bill of Rights coming from business and the conservative side of the spectrum, has been the ample leeway that TABOR gave to state lawmakers to play games with the tax refunds.

University of Colorado Professor of Economics Barry Poulson has written at length on this. He notes that although most of the TABOR surplus has historically been generated by Colorado’s income and sales taxes, state lawmakers soon began abusing the spirit of the constitutional amendment to begin targeting tax cuts and tax rebates to the benefit of narrow interest groups. Thus, less of the surplus was being refunded to the people who actually paid the excess taxes.

Colorado legislators also abused TABOR, says Poulson, through Ponzi-like financial manipulations:

“The Legislature chose to retain the surplus revenue generated in the current year in the general fund reserve, and to finance rebates from the surplus revenue generated in the following year,” he writes. While such borrowing from the future worked when revenues were rising in the boom years, the flaw became apparent with the post 9-11 recession—forcing the state to finance its unpaid rebates from reductions in state spending.

Thus, although the Colorado Taxpayer Bill of Rights has received much criticism over its “ratchet” effect that requires state spending to decline when revenues decline, much of the blame for the modest severity, such as it was, from forced reduction in state spending, actually rests with the political avarice of state lawmakers. Year after year, they insisted on borrowing from anticipated future revenues to finance current spending.

According to BusinessNevada’s sources, the TASC for Nevada initiative is benefiting from Colorado’s experience, as its drafting committees deal in advance with such issues.