Group: Impose taxes on all sales

CARSON CITY -- A conservative Las Vegas think tank says Nevada should collect sales taxes on everything -- including utility bills, cell phone bills and food -- if it is to come up with a more stable and fair way of taxing residents.

It also wants to reduce the cost of government by establishing a "Budgeting for Outcomes" process to let private businesses, unions and others submit bids to operate state agencies and programs.

In a report released today, the Nevada Policy Research Institute calls for charging sales taxes on everything, while reducing the current 6.85 percent state sales tax rate to 3.5 percent and eliminating the business payroll and insurance premium taxes.

Fiscal analyst Geoffrey Lawrence makes these proposals and others in a report titled "One Sound State, Once Again."

Though expanding the sales tax would produce more than $5 billion in additional revenue, Lawrence said the plan is intended to be revenue-neutral.

Rebates would be given to all taxpayers to cover at least a portion of what they pay in food and utility costs. While sales taxes would be collected, the rate would be lower and businesses would have more incentive to expand through the elimination of the payroll and insurance taxes, the study says.

Only about one-third of the potential sales taxes now are collected, Lawrence added.

Lawrence acknowledged his tax approaches might not be supported by many legislators, especially Democrats.

"But we need solutions that work," he said. "Nothing on the table now looks that promising."

He maintained his plan is an alternative to the recommendations for higher taxes, including a corporate income tax, that he expects to come from a Moody's Analytics study of the state tax structure.

The results of that study are expected by July.

Lawrence said Nevadans cannot afford higher taxes and an expansion of government spending without leading to higher unemployment and more bankrupt businesses.

In the report, he theorizes governments are obligated to levy taxes to fund their operations, "but some level of wealth destruction is inevitable."

"However, poorly designed tax policy can distort the incentive structure to the point that wealth and jobs are needlessly destroyed."

In an interview, Lawrence said he doubts that legislators can muster the two-thirds support they would need to pass corporate or any other tax increases next year, so plans such as his that limit spending and provide more stable tax sources should receive consideration.

The most controversial institute proposal might be a recommendation that Nevada switch to a "Budgeting for Outcomes" approach of funding state government, something that Lawrence says has been used in Washington since 2002 and has been adopted in four other states.

Under this approach, the governor and legislators would seek bids from private companies, nonprofit and health organizations, unions and state agencies themselves on what they would charge to perform government functions.

Legislators would review bids and select ones that best fulfill the objectives they have set at a cost they can afford to pay.

"Because the bidding process allows state agencies, local governments, public employee unions, nonprofit institutions and private enterprise to bid competitively for each contract, taxpayers can be assured that government services are being delivered at the lowest cost," stated Lawrence in the report.

Since at least 2003, Nevada state government has been collecting far more in taxes than the rate of inflation and population growth, and the Legislature needs to limit the growth of government, he added.

In the state budgets between 2003 and 2007, state expenditures climbed 51.3 percent to expand the Millennium Scholarship and class-size reduction programs, full-day kindergarten and "pork projects," according to Policy Research Institute, which cited figures from state budget documents.

That is 30 percent more than growth for inflation and population increases, according to Lawrence.

Then in 2009, the Legislature increased taxes by $1 billion, or 19.1 percent.

The report, however, does not mention that the Legislature in a special session in February was forced to find ways to cover an $805 million shortfall.

State agency spending was cut by $300 million and the other $500 million was found by raiding agency reserves, using federal grants, taking money from Clark County and increasing mining, gaming and other fees.

The Policy Research Institute study proposes limiting government spending increases by the combined rate of inflation and population growth.

A 1979 law already requires these limits. But Lawrence said the law only forces governments to prepare budgets within the limit; legislators can approve budgets higher than the population-inflation limit.

State Senate Minority Leader Bill Raggio, R-Reno, has stated in the past that the spending limit law has been followed. He could not be reached for comment.

The Policy Research Institute's plan to charge sales taxes on food that is not consumed immediately might run into constitutional problems. A voter-approved constitutional amendment prevents retailers from charging this sales tax.

To lift that amendment would require at least one vote of the people. The repeal process would take more than two years, according to Lorne Malkiewich, administrator of the Legislative Counsel Bureau.

Lawrence acknowledged legislators and governors consider themselves "stewards of taxpayer dollars" and they might object to letting outsiders run government operations.

"But we have a citizen Legislature made up of people who are not experts in delivering services," he said. "We would get an initial list of priorities from legislators. They would set the goals."

In his report, Lawrence cites statements from Assemblyman Bernie Anderson, D-Sparks, that the real purpose of the $253,000 Moody's tax study is to justify legislative support for higher taxes.

He also contends that state Senate Majority Leader Steven Horsford, D-Las Vegas, has "signaled" for Moody's to recommend a corporate income tax.

A corporate income tax, however, would fluctuate widely in times of boom and bust and its purpose would be to "increase the volume of revenue, regardless of volatility, unemployment or other concerns," according to his analysis.

Horsford did not return a call for comment.

At the end of the special legislative session in February, Horsford predicted the state will face a $3.4 billion budget shortfall in 2011 and that he would seek legislative approval of tax proposals from Moody's and a 20-member Vision Stakeholders Group formed by a legislative committee.

During the special session, Horsford delivered a thundering speech in which he said gaming, mining and all businesses must contribute additional revenue if the state is to properly fund education and essential services.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.