Everything is bigger in Texas. Except the taxes.
You’re going to hear a lot about Texas taxes over the next six months, because the Nevada margins tax, Question 3 on the statewide November ballot, is loosely based on the Texas franchise tax. Texas has the second-fastest growing economy in the United States (behind North Dakota), so Question 3 proponents have been aggressive in asserting that a margins tax poses no threat to Nevada’s recovering businesses.
“If it’s done so much damage to Texas, why is their job growth so high and their economy booming? You have to look at Texas as one of the best economic engines the country has,” Question 3 spokesman Dan Hart told the Review-Journal’s Laura Myers last week.
It’s completely disingenuous to suggest that Nevada would suffer no economic harm, or that its experience could mirror that of Texas, if Question 3 won voter approval. Texas state Sen. Craig Estes, who wants to repeal his state’s franchise tax, gave a speech on the levy at a Tuesday luncheon in Las Vegas put on by the Nevada Policy Research Institute. Although Estes cannot point to any degree of fiscal devastation in his home state as a result of the Texas franchise tax, he made it very clear that the proposed Nevada margins tax has very little in common with his state’s levy in both circumstance and substance.
Simply put, comparisons between the taxes, which are assessed on business revenue minus some deductions, are foolish.
For starters, you have to consider how the Texas franchise tax reached its current form. Before 2006, Estes said, Texas LLCs and businesses that were incorporated in other states did not have to pay the franchise tax. So it was changed as part of major tax reforms. The rewritten franchise tax was not a new tax on all businesses — and Texans got a small property tax break along with the expanded levy.
Nevada’s Question 3, on the other hand, would come out of nowhere to drill the companies that employ the vast majority of the state’s workforce. That’s a big blow to the bottom line of businesses, with no accompanying tax relief.
Then there’s the rate and the reach of the taxes. The Texas franchise tax will hit most businesses at 0.975 percent this year, a reduction from 1 percent, although retail and wholesale businesses will be taxed at 0.4875 percent. And all kinds of Texas businesses are exempt, from sole proprietors to insurance companies. But the Nevada initiative, placed on the ballot by the teachers union to boost education spending, starts at a 2 percent rate and covers just about every kind of commerce.
Nevada’s tax would be two to four times as large as the Texas levy. The tax is bound to have destructive effects on jobs, job creation and commerce. You can’t suck a projected $750 million per year out of the Nevada economy without consequence. Voters know all about unintended consequences thanks to Obamacare. They’ll quickly learn that even the people who wrote Question 3 don’t fully understand how it will affect various industries.
The Texas economy is growing despite its margins tax because the state has a diverse economy, as well as a new oil boom. Nevada has neither.
Texas imposed its revised franchise tax during a healthy economy. Nevada’s margins tax would take effect during a fragile recovery.
If the teachers union had placed on the ballot a tax with a far lower rate, it might have been able to credibly claim little economic impact would result from the question’s passage. The union then could have sought future increases to the rate, after businesses better understood the reach of the tax and how to comply with it. But the teachers union got greedy.
It had to try to go bigger than Texas.
On Monday, my Review-Journal colleague Steve Sebelius will moderate a panel discussion on Question 3, also known as The Education Initiative, as part of the newspaper’s Hashtags &Headlines policy luncheon series. The event runs from 11:30 a.m. to 1 p.m. at, appropriately enough, Texas Station. Tickets cost $40 and will be available at the door. I will moderate June’s luncheon on medical marijuana.
Glenn Cook (firstname.lastname@example.org) is the Las Vegas Review-Journal’s senior editorial writer. Follow him on Twitter: @Glenn_CookNV. Listen to him Mondays at 4 p.m. on “Live and Local with Kevin Wall” on KXNT News Radio, 100.5 FM, 840 AM.