EDITORIAL: Vote no on Question 3

The most important campaign this fall is statewide ballot Question 3. No other race has the potential to cause so much harm while delivering so little good in return.

Question 3 would impose a 2 percent margins tax on all Nevada businesses that collect at least $1 million in annual revenue. If approved by voters, Question 3 would hammer employers with the largest tax increase in state history, a levy that instantly would make Nevada a less desirable place to start or expand a business.

An August study conducted by RCG Economics for the Coalition to Defeat the Margin Tax Initiative estimated the tax would take $800 million per year from Nevada employers. No commerce would be spared from the tax, not even health care, insurance and utilities.

It will hammer small businesses, because the $1 million revenue threshold is not a true exemption, but rather a cliff. If a business generates $1,000,001 in annual taxable revenue, all revenue is taxed at 2 percent, not just the $1 above $1 million. And because the tax hits business revenue, not profits, an awful lot of low-margin, high-volume companies in this state will become unprofitable if Question 3 passes. It will discourage small business growth and cost thousands of people their jobs.

Some businesses, such as acute-care hospitals, can’t simply raise prices to pay their margins tax bill. Question 3 does not exempt Medicare and Medicaid reimbursements from the revenue tallies of hospitals and medical offices, even though those tax-funded payments already fall well below the actual cost of delivering care. And hospitals have negotiated reimbursement rates with health insurers, which also are subject to the margins tax.

Hospitals already are struggling to meet all the caustic mandates of the Affordable Care Act, because newly covered Medicaid recipients still use emergency rooms for medical conditions that are best treated by less costly urgent care centers. Should the margins tax win voter approval, profitable hospitals would have less money to reinvest in capital improvements and technology, and unprofitable hospitals — there are many in Nevada — would close money-losing departments and services. It’s a terrible outcome for a state sorely in need of health care investment and expansion.

According to a study released this month by Jeremy Aguero of Applied Analysis, the margins tax would slap the health care sector with $80 million in new annual costs, representing a 203 percent increase in business taxes on medical providers. So much for trying to keep health care affordable and accessible.

Question 3 was placed on the ballot through an initiative circulated by the state teachers union. The margins tax was modeled after Texas’ franchise tax. But Texas’ tax provides multiple exemptions for health care providers, in part because so much health care revenue passes through several entities, from insurer to hospital to contractor, and would be subject to “pyramiding” — the same dollar being taxed multiple times. But Question 3 provides no such breaks for Nevada. And voter-approved initiatives cannot be amended by lawmakers for at least three years. If Question 3 passes, we’ll be stuck with all its awful consequences until at least 2018.

The union calls the ballot question The Education Initiative and promises all margins tax revenue will augment existing public school spending. But if Question 3 passes, there is nothing to stop lawmakers from diverting some existing school funding into mental health care, higher education and social welfare programs. And Question 3 prohibits margins tax revenue from being spent on construction projects, which is the K-12 system’s single greatest need.

The Clark County School District has taken steps to make itself more accountable for how it spends taxpayer dollars, and because of that, there’s more support in the business community and the Legislature for increased education funding. However, the margins tax will remove so much capital from the private economy that it simply isn’t possible for the state’s K-12 system to spend it in a way that guarantees improved student achievement. Boosting the salaries of current teachers is the union’s highest priority, not hiring new educators. A large number of teachers deserve a pay raise, but that raise won’t make them better teachers overnight.

More money, by itself, won’t make our schools better, and Question 3 includes no education reforms as part of its language. That’s by design. Question 3 was written to be a reform killer. The path to improved school funding in Nevada has always been a policy trade-off: reforms and accountability for revenues. That’s how teacher tenure guarantees were stripped down and how teacher evaluations were enacted earlier this decade. But if voters deliver a huge new pile of revenue to the Legislature’s majority Democrats, those lawmakers won’t have to vote for reforms the teachers unions hate, such as performance pay and stronger charter school laws. Question 3 would preserve the failing status quo.

The margins tax doesn’t guarantee better schools. But it does guarantee a much worse economy. This tax, which purportedly benefits our children, will make it much harder for graduates — and their parents and everyone else in Nevada — to find jobs in a state that already has one of the highest unemployment rates in America.

The Review-Journal editorial board endorses a “no” vote on Question 3.