CARSON CITY — Teachers looking to use a Nov. 4 ballot question to pass the biggest education tax increase in Nevada history face opposition from a new business group determined to derail their efforts.
The Committee to Defeat the Margins Tax Initiative added a new argument to their arsenal two weeks ago — fear of a “fiscal cliff.”
That’s the term they use to describe the tax hit businesses would absorb the moment their revenue tops $1 million a year.
Under the Nevada State Education Association’s proposed 2 percent margins tax, businesses that earn $1 million or less pay nothing. The anti-tax committee estimates any business that exceeds the cap by just one penny would pay $14,000.
“It would keep small businesses from growing,” committee spokeswoman Karen Griffin said. “This is a massive, damaging tax and there is so much confusion about it.”
Griffin also said the margins tax rate for the typical company would be equivalent to a 15 percent business profit tax rate, the fifth highest in the country and much higher than California’s rate of 8.8 percent. Experts say the tax could raise $700 million annually for public education.
But opponents say there is no guarantee that legislators would not take money now going to public education and divert it to other parts of the state budget. If the teachers’ tax passed, the decision on how the money would be divided up for public education rests with the Legislature next year, and lawmakers could be tempted to tap the cash for other reasons.
The 2013 Legislature approved public education support, counting state and local taxes, of $5.512 billion for the current two-year budget, an 8.7 percent increase over the previous budget. Students this year receive an average $5,590 in state support. Total support per student was $8,483 in 2010, according to the U.S. Census Bureau, while the national average was $10,635.
The fiscal cliff warning is the latest obstacle facing the the teachers association in their decade-long effort of trying and failing to wrangle more money from the Legislature.
Those efforts so far have been unsuccessful. In fact, legislators in a recent session even diverted more than $200 million in room tax revenue from public schools and sent it to other parts of the budget.
The teachers now hope voters will provide the cash lawmakers have so far refused to deliver.
A poll by the Retail Association of Nevada last fall found the electorate was divided on the issue with 46 percent for the tax and 47 percent against. The NSEA’s own poll showed 61 percent support for the tax. The Retail Association poll has a margin of error of plus or minus 4 percentage points.
The teachers also have a rhetorical arsenal of their own to counter the fiscal cliff and other anti-tax arguments.
For example, NSEA President Ruben Murillo said tax cutoff points, such as the $1 million in the ballot question, are commonplace. Cutoffs exist in federal income taxes, airline mileage programs, health care benefits, auto insurance policies and other areas, he said.
EDUCATION SPENDING ‘UNFAIR’
Instead of talking about unfair taxes, Murillo wants the conversation to be about imbalances in education spending.
For example, he questioned the fairness of limits that put a student living on one side of the street in Clark County in a “Zoom school,” while families “on the proverbial other side of the street” are left out.
Fourteen of more than 200 elementary schools in Clark County were declared Zoom schools this fall. They are given extra money to work with children learning English and on other programs, more money for education could mean more Zoom schools.
Pro-tax advocates would also like to remind voters that funding imbalances affect class sizes, too.
During the legislative session last year, the Department of Education reported there are 34 children in the average high school class in Clark County, compared to 27 in Washoe County.
And they want to make some tax arguments of their own to suggest the fiscal cliff isn’t as scary as the anti-tax side claims.
Lynn Warne, the former NSEA president who led the petition drive in 2012 for “The Education Initiative,” said the critics overlook the fact that if voters approve the margins tax measure, businesses could offset at least part of the expense of the new tax by deducting what they now pay in payroll taxes. The 1.17 percent tax on business payrolls brings in $380 million a year.
She also said even if voters approve the tax as is there would be opportunities to refine it later.
“It is hard to say what tweaks we will make after it passes,” Warne added.
But a voter-approved tax could not be changed by the Legislature for three years. That would mean the one-cent “fiscal cliff” would exist for at least that long.
Griffin noted that the Legislature meets every other year. If a move was made to correct perceived inequities, she said, it might not occur for four or more years unless a special session was called.
BEWARE OF MISINFORMATION
Expect both sides to take advantage of the complicated tax by emphasizing only the aspects they want to sell and ignoring parts that might undercut their positions.
‘We are not surprised that the business community is dissecting a business tax and trying to find ways not to pay it,” Murillo said. “Experts believe this version of the margins tax fairly distributes the accountability across all businesses.”
But the fact remains there is a one-cent fiscal cliff, Griffin said. Companies earning just more than $1 million would be inclined to reduce, not increase, their revenue to avoid the tax, she added.
If the NSEA petition allowed an across-the-board $1 million tax exemption to all companies, then there would be no one-cent fiscal cliff. Each company would receive the same exemption. That is how it works with the the state’s only major current business tax: A $350,000 across-the-board deduction is given to each company on its payroll taxes.
One of the reasons that the one-cent fiscal cliff has not received much public attention is because her committee has just begun “gearing up for its campaign opposing the tax,” Griffin said. She said their estimate that the 2 percent margins tax is equivalent to a 15 percent business profits tax comes from Jeremy Aguero, an Applied Analysis executive who said that he is doing studies for both sides.
Aguero, who has studied different sides of the issue, said only his clients could release the results.
But in an interview, Aguero said the margins tax potentially could be harmful to business.
Danny Thompson, the executive secretary-treasurer of the Nevada State AFL-CIO, was an early supporter of the margins tax. But he said last month that he has concerns that the tax could hurt union members, particularly those who work for contractors. The apparent shift was a blow to tax supporters. Whether his union backs the tax will be decided in a May convention.
Contact Capital Bureau Chief Ed Vogel at email@example.com or 775-687-3901. Follow him on Twitter @edisonvogel.