State money handlers say governor’s tax hike unnecessary and damaging

Both the state’s newly elected Republican controller and treasurer have come out against Republican Gov. Brian Sandoval’s plan to raise taxes by $1.2 billion over the next two years, primarily to fund education.

Ron Knecht

State Controller Ron Knecht in what he is calling his first monthly report flatly states that the contention that tax revenue is not keeping up with the state’s needs is simply wrong. “In the last ten years alone, state spending has grown 10% more than Nevadans’ incomes,” he writes, “proving that the problem is spending, not revenues. By slowing economic growth, excess spending has reduced incomes from what they would have been with better public policy, and it will continue to do so until we rein it in. If new spending is needed, it should be financed by cutting less meritorious spending, not by tax increases.”

Knecht dug into the state’s finances and discovered that, relative to the Nevadans’ incomes, spending for Health and Human Services in the state has grown 37 percent and K-12 public education spending has increased 23 percent in the past decade — with no corresponding improvement in student test scores or graduation rates.

Dan Schwartz

He looked into the entire state budget, which is more than $20 billion, not just the general fund and notes that the taxpayer burden is not due to inflation or population growth. He also said Nevada’s tax burden now ranks 25th or 26th in the nation, depending on how it is measured.

State Treasurer Dan Schwartz noted that Knecht’s “statistics raise questions both of priorities and ‘value for money.’ The report reminds us that throwing money at a problem will not solve it. Though a common belief in the political world, sadly, that is rarely the case in the real world.”

Both the controller and the treasurer came close to using the words of French economist Frederic Bastiat — of the famous broken window aphorism — who pointed out that government spending simply diverts money that could otherwise have been used in the productive sector.

“A careless person will applaud when government ‘creates’ jobs,” says Cato Institute’s Dan Mitchell in a weekend blog posting on Bastiat’s admonitions. “Sober-minded analysts, though, will wonder about the private jobs destroyed by such policies.”

Knecht put it this way:

“If public-sector over-reach had been restrained, we wouldn’t have endured as much slowing of economic growth in recent decades as we have, nor the poorest recovery since the Great Depression during this last six years. So, aggregate incomes and human well-being would be significantly higher than they are today. As long as government excess continues, we will fall further and further behind where we should be, regardless of what feel-good public programs we add and expand. The damage to economic growth caused by the continuing and growing excesses of government taxing, spending and regulation overwhelms any good that such new spending and programs can do. Hence, people who understand how the world works and care about our children’s futures want to restrain the growth of government.

“The erroneous notion that more public-sector activity and spending serves the public interest is the problem: When government is already too big – as it is – the public interest is served by paring it back, not by doubling down on the failed practices of the past. If meritorious new spending is proposed, it should now be financed by cutting less meritorious spending, not by tax increases.”

Schwartz even suggested one place where the budget could be cut, something Sandoval never touched on in his State of the State speech where he outlined his tax hikes. Schwartz estimated $50 million could be saved by cutting the expenses of the state’s more than 200 boards, agencies, commissions and other non-essential legacies.

For his part, Knecht suggested eliminating collective bargaining for local government public employees and repealing the prevailing-wage law that increases the cost of public projects by as much as 20 percent.

Both attacked the governor’s plan for a graduated business license fee based on gross receipts, a plan that is the same as, though smaller than, the gross receipts tax the voters rejected in November by a vote of four to one with the governor himself in vocal opposition.

In an email Knecht said, “The Governor’s business margins tax should be rejected.  It’s unnecessary and one of the most destructive tax proposals seen in quite a while.  I also think the sunset taxes should … sunset.”

Both Knecht and Schwartz had the temerity to suggest that perhaps the taxes on the tourist driven gaming industry — “the lowest among major gaming venues,” as Knecht noted — could be raised.

Controller’s report

Treasurer statement