Newspaper column: Former Gov. Miller touts his failed education spending to promote Sandoval’s plan

This past week Gov. Brian Sandoval presented his proposed business license tax based on gross receipts in the form of Senate Bill 252 to a joint meeting of the state Senate and Assembly taxation committees. He insisted his proposal is not like the margin tax soundly defeated by the voters in November.

“The business license fee (BLF) as proposed is broad based because it will apply to all Nevada businesses,” Sandoval said. “The BLF is fair … It also differentiates between business types. Businesses have different costs of labor and goods and the BLF recognizes that. Construction is not the same as a retailer and a retailer is not the same as a resort hotel.”

Former Gov. Bob Miller testifies for raising taxes to support public education.

The margin tax pushed by The Nevada State Education Association would have imposed a 2 percent tax on the gross receipts of all Nevada businesses that gross more than $1 million a year, regardless of profitability.

Sandoval’s plan doubles the business license fee on all businesses from $200 to $400 and also imposes a tax on gross receipts. SB252 is a 130-page behemoth with 27 separate tax tables for different industries. For some industries the tax kicks in at about $125,000 a year and for others it doesn’t apply until nearly $200,000 a year. The tax rates vary from a low of 0.056 percent for mining to a high of 0.362 percent for rail transportation.

The margin tax was estimated to hit private industry with $800 million a year in taxes, while Sandoval has said his tax will rake in $250 million. The lowest tax would be $400 and the highest would be $4 million.

For all its flaws, the margin tax was uniform. Sandoval’s is a contortion. Those 27 different tax tables arguably defy the state constitutional mandate that: “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation …”

To help sell his tax hike, Sandoval dragged before the tax panels former Gov. Bob Miller as a living, breathing illustration of just how ineffective his plan to spend more money on education will be.

Miller pushed for and the 1989 Legislature approved a class-size reduction in grades first through third.

“I along with many people in this room have been fighting to modernize our education system through both reforms and the creation of a stable broad-based funding source, and this session is the best opportunity we will likely ever have to reach this goal,” Miller testified. “In the 1990s our focus, mine and the Legislature, was on class-size reduction and early childhood programs … but here we are today, and as most of you know, the statistics are depressing about our state’s education system.”

He went on to cite the facts that students are reading below grade level and 30 percent aren’t graduating from high school.

Since 1990 the state has spent close to $2.5 billion on Miller’s class-size reduction — which like Sandoval’s plans for all-day kindergarten, early childhood education and various special million-dollar programs seemed a no-brainer at the time — but the results have been nil. In fact, in some cases the results have run counter to what was expected.

A 2001 report by the Nevada Legislative Counsel Bureau found that, while principals, teachers, and parents were very positive in their attitudes toward class-size reduction, achievement data did not produce results. Students in larger classes outperformed those in the smaller classes.

Twenty-five years and billions of dollars later Miller is back and saying the system is broken and we need to spend billions of dollars more on special programs, largely the same as he did years ago. Why should we believe him again?

Two ideas Sandoval has put forward, but without much specificity, might improve things: stop promoting third graders who cannot read and provide incentive pay to teachers whose students show improvement on assessment tests. Neither requires tax hikes.

The Nevada Registered Agent Association commissioned a study of SB252 that estimated its enactment would cut new business filings in Nevada by approximately 44 percent in fiscal year 2016 and 63 percent in FY 2017. The study also estimated that the proposal overstates its revenue projections by approximately $42 million in FY 2016 and by about $65 million for FY 2017. NRAA Study

How long will it be before the the business license tax is increased? Better yet, how long will it be before we see improvements in education?

According to the Cato Institute, Nevada has increased inflation adjusted per pupil spending more than 80 percent since 1972, but SAT scores have fallen.

Meanwhile, no one is suggesting any budget cuts.

Cato Institute study of Nevada education spending and the results.

A version of this column appears this week in the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel, the Lincoln County Record and the Sparks Tribune — and the Elko Daily Free Press.

Sandoval lashes out at criticism of tax without rebutting a single fact

Gov. Brian Sandoval engaged in the lowest of political treachery and deception, launching into an ad hominem attack on the Tax Foundation’s analysis of his business license fee (BLF) based on graduated gross receipts.

Sandoval said of the study commissioned by the Las Vegas Metro Chamber of Commerce:

“The report issued today by the Las Vegas Metro Chamber of Commerce’s Tax Foundation is utterly irresponsible, intellectually dishonest and built upon erroneous assumptions. I know I am not alone in expressing my disappointment in the Chamber’s judgment especially for an organization that repeatedly claims to want to help move Nevada forward. Moreover, this act sits in direct contradiction to what the Chamber’s leaders have expressed to me on several occasions privately in my office. The only good to come from this stunt is that for those of us who are working in good faith to solve Nevada’s education challenges, it removes all doubt about where the Las Vegas Chamber stands. I believe the Chamber’s leaders have done their membership a terrible disservice and have harmed the credibility of an organization that purports to stand for education.”

The statement is all bluster and void of facts. He names not a single erroneous assumption. He makes no cogent argument, instead resorting to salacious name calling.

On the other hand the Tax Foundation study was dripping with facts and figures.

Gov. Brian Sandoval (Reno Gazette-Journal photo)

It is Sandoval who is probably engaging in erroneous assumptions. Both the Tax Foundation and the Nevada Registered Agent Association both say Sandoval’s estimation that the BLF will eventually net $250 million a year in revenue is wildly inflated. The agents say it is overstated by $65 million a year and the Foundation says it may be as much as $100 million. Both say the governor overstates how many will pay the tax.

The Foundation notes the governor projects a growth in the number of business licenses from the present 308,000 to 340,000.

The Foundation cites the agents’ study that estimated a net drop of 124,000 registered businesses in the state and a 55 percent reduction in new filings.

Of course, the spineless Chamber immediately disavowed any knowledge of the study and apologized to the governor for the “tone and tenor” of the study.

The Foundation called the tax a “complex, arbitrary tax that will do long-term harm to Nevada’s economic growth.”

“It will be Nevada’s most complex tax for both taxpayers and tax administrators, with a multi-step method of rate calculation bordering on arbitrary, 67 rates plus cliffs and phase-ins for each one, and unclear guidance for multi-industry and interstate companies,” the study said. “It is also decidedly non-neutral, with stated tax rates deliberately varying widely by industry such that it exacerbates tax pyramiding and likely violates federal prohibitions against discriminatory taxation.”

It also violates the state Constitution’s dictate that taxes be uniform and equal.

To illustrate the unfairness of the tax, the Foundation quotes the Guinn Center as saying: “Under the revised Business License Fee structure, publishing, software, and data processing were grouped into one category and taxed at a rate of 0.276 percent, the fifth highest rate. However, the profitability rate for those industries varies significantly: publishing (12.81 percent), software (4.19 percent), and data processing (0.80 percent).”

That is downright arbitrary and capricious, as well as utterly irresponsible, intellectually dishonest and built upon erroneous assumptions.

In an email responding to the governor’s ad hominem attack, the Tax Foundation listed key facts:

  • The proposal would convert the existing flat $200 Business License Fee into a tiered system of 67 revenue ranges for each of 27 industry categories. Additionally, foreign filers and non-employer businesses would pay a flat fee of $400, bringing the total to 29 categories of filers and 1,811 possible flat-dollar-amount tax liabilities.
  • The proposal is targeted to generate $250 million per year once fully implemented and is projected to raise $438 million over the first biennium. However, these revenue estimates may be overstated by hundreds of millions of dollars.
  • While attempting to mitigate the inherent flaws of gross receipts taxes, the designers of the BLF created a complex tax structure that violates the principles of simplicity and neutrality. The proposal requires significant additional administration costs and compliance burdens, and a quick implementation invites disaster.
  • BLF rates are arbitrarily calculated using Texas data from a single year, despite the high likelihood that such data is not representative of Nevada’s economy. BLF rates do not correlate with profitability, resulting in punitive taxes for some and taxation of unprofitable firms.
  • The BLF designers incorporated revenue cliffs that result in absurdly high marginal tax rates, reaching as high as 13 million percent. BLF designers concede pyramiding will be a problem, violating the principle of neutrality.
  • BLF industry categories were arbitrarily selected and will result in tax arbitrage and economic distortions, as seen in states with similar taxes.
  • Texas and Washington, while providing the model for the Nevada BLF proposal, are considering proposals to repeal their analogous taxes.
  • The BLF proposal violates the principle of transparency by mislabeling an obvious tax.
  • The BLF as proposed likely violates the interstate commerce clause and federal law.