Don’t study tax hikes, avoid them altogether

Taxpayers got some rare good news this week when Gov. Jim Gibbons vetoed legislation to spend $500,000 studying how to raise Nevada's taxes even higher.

Lawmakers who supported the plan would argue straight-faced that there's no agenda behind the objective, ahem, "research." They'll say they only want a thorough examination of state revenues before them when they reconvene in 2011 to take up the idea of "restructuring" taxes to create a broader, more stable mechanism to finance state government. Never mind that Nevada already has completed several such studies at considerable taxpayer expense over the past few decades.

In truth, the Legislature's Democratic majority wants to lay the groundwork for all-new taxes on individuals and businesses so they can continue creating and expanding programs and services without worrying about how to pay for them. They're convinced that if some sort of business tax poured money into Nevada's general fund and made public education and welfare programs less reliant on sales and gaming taxes, state government could have avoided much of the pain this ruthless recession has inflicted on the Nevada economy.

It's a foolish notion that has been disproved by national study after national study since before the recession began. The 2011 Legislature can tear up Nevada's tax code and copy the revenue structure of any of the 49 other states and lawmakers will still have to deal with the ebbs and flows of the free-market economy. A recent report by the Nelson A. Rockefeller Institute of Government demonstrates as much in finding that tax revenue, adjusted for inflation, declined in 42 states last year.

State and local sales tax collections experienced their worst declines in 50 years, while personal and corporate income taxes -- two levies Nevada Democrats would love to impose here -- also plunged, the report said.

"Most state tax revenue sources are heavily influenced by the economy -- the income tax rises when income rises, the sales tax increases when consumers increase their purchases of taxable items, and so on," study co-authors Donald J. Boyd and Lucy Dadayan wrote. "When the economy booms, tax revenue tends to rise rapidly, and when it declines, tax revenue tends to decline."

The least harmful way to increase government revenue is to encourage economic growth. The worst way to encourage economic growth is to increase taxes during a recession.

This year, the Nevada Legislature answered one worst-case scenario with another. Gov. Gibbons' veto at least ensures they won't get a head start on making the same mistake twice.