Half-baked study cooks margins tax

Question 3, the business margins tax, is a study in overreach. So it’s appropriate and unsurprising that the most recent and likely last pre-election study on the initiative’s economic impact holds even less water than the question itself.

What was surprising, however, was UNLV delivering exactly what the question’s supporters wanted in exchange for the commission they paid to the university: an analysis that says a huge new tax on employers will boost the economy and increase overall employment.

Every other credible study says Question 3, if approved by voters in November, will immediately give Nevada one of the least-friendly business climates in the West, reduce consumers’ disposable income and wipe out thousands of private-sector jobs. The 2 percent tax on businesses with at least $1 million in annual revenues, minus deductions for the cost of materials or labor, will turn barely profitable companies into money losers and prompt some employers to close their doors. The question isn’t whether Question 3 will blast Nevada — its mere presence on the ballot is hurting the state’s efforts to attract new industry — but how badly it will damage the state’s economy if it passes.

However, UNLV’s Center for Business and Economic Research would have everyone believe that transferring private capital to government control is the path to prosperity. The conclusions were so laughable that UNLV issued a news release discrediting the Question 3 analysis upon its release this month. Acting UNLV President Don Snyder asked the Washington-based Brookings Institution to review the study and assess its quality.

As if we need verification that it stinks.

Question 3, called The Education Initiative, was placed on the ballot by the state teachers union, which asserts that a huge infusion of money will fix Nevada’s underachieving schools. The tax could take anywhere between $460 million and $860 million per year from the state’s employers.

UNLV’s study buys into the argument that increased spending will produce better results from schools, even though there is plenty of research to the contrary. The authors use this premise to assert that the benefits of improved schools and the hiring of thousands of teachers will exceed the economic harm caused by the tax, yielding a net economic benefit.

The study ignores several economic and political realities:

1. Businesses that lack the capital to reinvest can’t grow. When government employees are hired at the expense of private-sector jobs, those government positions aren’t sustainable.

2. If Question 3 is approved, all that new money won’t go to schools. The Legislature will reduce existing school funding to boost mental health, higher education and other state services.

3. If Question 3 is approved, a huge chunk of the money that does go to schools will provide large pay raises for the existing workforce. This is a higher priority for the teacher unions than hiring new teachers. Simply ratcheting up teacher pay scales — no matter how deserving many teachers are — won’t make them better teachers overnight. Thus, no correlating improvement in outcomes, and no economic benefit.

4. Clark County School District campuses are well over their enrollment capacities. The district has no classroom space in which to place newly hired teachers, and won’t for at least another four or five years. That will limit the hiring the UNLV study is counting on to goose the economy.

5. If schools get a huge infusion of money, the state’s new spending priorities are elementary campuses — an expansion of preschool and pre-kindergarten, fully subsidized full-day kindergarten at every school, and reduced class sizes in all elementary grades (even though there’s no space for those classes). The spending would overwhelmingly benefit students who are eight to 15 years away from entering the workforce or starting college. So you have an immediate, harmful transfer of capital from the private sector, but no immediate benefit to those businesses in terms of producing skilled workers.

The teachers unions are all alone in pushing for passage of Question 3. Even their labor brethren oppose the tax. Now their best argument for passage is a debunked, disowned, delusional analysis. Stick a fork in it.

Glenn Cook (gcook@reviewjournal.com) is the Las Vegas Review-Journal’s senior editorial writer. Follow him on Twitter: @Glenn_CookNV. Resuming Sept. 8, listen to him Mondays at 4 p.m. on “Live and Local with Kevin Wall” on KXNT News Radio, 100.5 FM, 840 AM.

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