Study: Economic volatility overlooked

The wrangling over the state budget and Nevada's boom-or-bust revenue picture misses something fundamental, according to a study released Monday: the fact that taxes are tied to economies, which fluctuate.

The Nevada Development Authority commissioned the study to establish some baseline facts about Nevada's tax structure.

The report will be presented to state officials as "a framework for public policy discussions," said Joe Brown, who sits on the authority's executive committee.

The report does not make policy recommendations, and representatives of the authority and the Theodore Roosevelt Institute, which prepared the report, took pains Monday not to be drawn into a discussion of specific budget proposals.

Nevada is facing a $1 billion-plus budget deficit at the state level, and local governments are feeling pinched as well. The end of the real estate boom and the general economic malaise have wreaked havoc on public coffers.

Possible solutions are being circulated: increasing the gaming tax, adding taxes on mining, diverting more property tax revenue to the state.

But some of the discussions might be asking the wrong questions, said Alan Schlottmann, a University of Nevada, Las Vegas economics professor who leads the Theodore Roosevelt Institute, which bills itself as a nonpartisan research group.

Most taxes are tied to the performance of the economy, and even adding taxes or increasing existing ones would not necessarily smooth out tax revenue ups and downs, he said.

"Is there a 'magic tax' that would solve the volatility problem?" Schlottmann asked. "In our opinion, no ... you can't have a tax system that's not going to be volatile."

He looked at the 14 sources of state revenue, including the four largest: the gaming tax, the sales tax, the modified business tax and the insurance premium tax.

Each had different levels of long-term growth and short-term volatility and for the most part represented a trade-off.

Gaming taxes are relatively stable over the long term, but they do not grow fast enough to keep up with increased population and demands for services.

The same was true of property taxes. The sales tax does keep pace with growth but is more subject to ups and downs in the economy.

Schlottmann said that any discussion of tax changes at the state level must include local governments too because the state essentially controls how local revenue is raised.

The meat of the report quantifies what is called the "elasticity" of the state's revenue sources: how much they expand or contract in relation to the local and national economies.

"We weren't trying to come to conclusions," Schlottmann said. "This makes the discussion more complicated, but it gives us the framework that we need."

Contact reporter Alan Choate at achoate@reviewjournal.com or 702-229-6435.