CARSON CITY – An early-day Nevada legislative reporter who called himself Mark Twain once wrote: “It is difference of opinion that makes horse races.”
That applies for this year’s legislative session, especially the pending debate over tax increases.
Democrats want to spend more money on public education, while Republicans won’t support that goal if it means they must back new tax increases – other than continuing $649 million in “sunset’ taxes that otherwise would expire June 30.
There clearly is a difference of opinion on taxes.
But Democrats are four votes shy of the two-thirds majority needed in the state Senate and Assembly to approve higher taxes, or to override a guaranteed veto by Republican Gov. Brian Sandoval on any tax legislation.
So in the legislative horse race of 2013, Republicans have the advantage. If they hang tough, any Democratic move to increase taxes is doomed to failure. In this horse race, the odds favor the GOP.
“I do not foresee a new tax increase passing this session,” said Senate Minority Leader Michael Roberson, R-Las Vegas.
But he added that at least some of the “sunset” sales and business taxes will be extended for two more years.
“An extension of some or all of the sunsets is likely, unless we enact tax reform which includes elimination of some of the existing taxes,” he said.
EXTENSIONS COST NEVADANS $120 A YEAR
If you concede that businesses pass on their taxes to others, the tax extensions will cost every man, woman and child in the state about $120 a year. That figure comes from dividing the total tax of
$649 million for two years by the 2.7 million state population.
Sandoval’s chief of staff, Gerald Gardner, disagrees with those who – like conservative blogger Chuck Muth – contend that continuing the sunset taxes represents a tax increase.
“No Nevadan will pay more than they do now,” he said. “We don’t believe that extending the sunsets is a tax increase.”
Democratic leaders have not called for a tax increase. Instead they plan first on looking at all state taxes, determine whether they are fair and being properly collected, review state spending, and then decide whether there are sufficient funds available for education improvements – such as full-day kindergarten in each elementary school, lower class sizes and more money for early childhood education.
“If we really need to find solutions for Nevada, we have to put everything on the table,” said Senate Majority Leader Mo Denis, D-Las Vegas. “We’re not necessarily looking to increase revenue. It all depends on where we end up.”
Democrats used a similar tactic in the 2011 session. They would not say until May that they favored higher taxes. Then hearings on implementing a business tax were quickly conducted. The tax went nowhere because Republicans had enough votes to block them.
Sandoval has proposed adding full-day kindergarten at 46 schools without increasing taxes, but Denis said children at all elementary schools should have it now. That would mean adding it at another 100 schools.
Both liberal and conservative lobbyists concede the Democrats won’t pass new tax increases, other than continuing the sunset taxes, unless the Republicans capitulate and go against their no-new-tax pledges. They do not see that happening.
“I don’t think Democrats can pull off enough Republican votes to pass (new) tax increases,” said Geoff Lawrence, a lobbyist for the conservative Nevada Policy Research Institute, based in Las Vegas. “I don’t see Sandoval backing any kind of business margins tax going into an election year.”
His liberal counterpart agrees.
“I don’t hold a lot of hope for that (a legislatively approved tax increase) happening,” said Brian Fadie, director of ProgressNow Nevada. “They aren’t going to allow anything to go to a vote. Otherwise they will get a lot of ads in the next election that they voted to raise taxes.”
VOTERS EXPECTED TO GET TEACHERS TAX
Fadie also predicted legislators will ignore the Nevada State Education Association’s petition to raise $800 million a year for education through a 2 percent business margins tax. Because of a Supreme Court decision last week, the tax plan must be considered March 15 by the Legislature.
But if the Legislature does not pass the teacher union’s tax petition – signed by 150,000 voters – then it will go on the general election ballot in 2014. The tax would not be imposed in time to affect the coming two-year budget.
With voter approval – possible because of voters’ traditional support of taxes that they don’t have to pay themselves – the higher tax would go into effect in 2015. Fadie is confident voters would approve the higher tax.
“The Education Initiative is the best proposal we have on the table,” Fadie said. “I am confident the people will pass it. If the Legislature allows it to go to the people, then they cannot be recorded as for or against taxes. It’s best possible option we have (to fund education properly).”
Under the teachers’ proposal, the first $1 million earned by a company, would be exempt from the tax. But their petition specifies a limited number of deductions companies can take before the tax is calculated. The deductions are not based on profits, which means a company that is not making a profit still might have to pay a business tax.
In an interview in December, Assembly Speaker Marilyn Kirkpatrick, D-North Las Vegas, said she sees problems with the teachers tax, and the Legislature could develop an alternative tax plan that also would be placed on the 2014 ballot. If their proposal wins at least a majority vote and gathers more votes than the teachers’ plan, then it would become law.
But legislators would need the governor’s signature to put an alternative tax before voters. Sandoval made it clear Thursday that he wants no new taxes of any type, and Roberson doubts an alternative question would win legislative support.
“The short answer is: I doubt a ballot alternative will be proposed.”
Fadie said an alternative tax on the ballot would only confuse voters.
KIRKPATRICK TO LAUNCH TAX REVIEW
Kirkpatrick vows on Day 2, which will be Tuesday, to start a thorough tax review. Expect an early examination of the “C” tax or comprehensive tax formula. The formula, first passed in 1997, determines how state government returns to local governments revenue raised from six state taxes.
Cities such as Fernley and North Las Vegas have contended they are shortchanged by the formula. Fernley sued the state, but the state Supreme Court ruled in January that the statute of limitations had expired on its complaint.
Kirkpatrick wants to approve a fairer formula within 40 days because local government must submit their budgets to the Taxation Department in April.
Legislators will discuss expanding the state sales tax to additional services. According to the Disappearing Retail Sales Tax study, 37.4 percent of potential items and services in Nevada are taxed. That compares with 99.2 percent in Hawaii.
That means the 4 percent sales tax in Hawaii brings in much more money per person than the 6.85 percent statewide sales tax in Nevada.
While opposing tax increases, Lawrence, the conservative think lobbyist, said the best tax that legislators could pass is a “broad-based” sales tax. “The taxes today no longer reflect our economy,” said Lawrence, noting that when sales taxes first were imposed in the 1950s, most sales in Nevada were of tangible goods. Today, Nevada has a service economy, he said, noting that legislators could look at adding more services to the sales tax and reducing the tax rate to create a “revenue neutral” tax.
But Gardner questioned whether a tax that truly is revenue neutral for everyone could be designed. No matter the tax, some people would pay more and others less, he added. “The governor similarly has said, ‘Let’s see it,’ and he hasn’t seen anything yet. I think he is always willing to listen to a discussion, but he does not support raising taxes.”
Sandoval told voters how he feels about taxes in his Jan. 16 of the State of the State address, according to Gardner.
“And Nevadans will continue to benefit from the over-arching policy of this administration throughout this economic downturn – that is, we cannot cut our way out (of the recession), we cannot tax our way out, we can only grow our way out,” Sandoval said. “And that is exactly what we are doing.”
Contact Capital Bureau Chief Ed Vogel at email@example.com or 775-687-3901.SUNSET TAXES SET TO EXPIRE JUNE 30
Modified business or payroll tax: This is a 1.17 percent tax paid by businesses on each employee’s wages. The first $250,000 in annual payroll is exempt from the tax, but Sandoval wants to increase that exemption to the first $340,000 in payroll. The tax would bring in $259 million over the next two years. But the increased exemption would cost the state $24 million, leaving a net of $235 million.
Sandoval said he would like to get rid of this tax entirely since it directly affects business’ decisions to hire new employees or give existing employees more money. Sandoval Chief of Staff Gerald Gardner said the idea of ending the tax is a “goal” of the governor, but cannot be reached this session.
Business license tax: This a $200-a-year fee each business must pay. Very small home-based businesses are exempt. Brings in $62.3 million. Before being approved in 2009, the fee was $100 per year.
Local school support tax: This is a 0.35 percentage point sales tax that goes directly to public schools. Brings in $331.2 million.