Editorial: Here’s another chance to repeal the Commerce Tax

In 2014 Nevada voters rejected by 79 percent to 21 percent a proposed margins tax, effectively an income tax on state businesses. Despite this unequivocal rejection at the ballot box, lawmakers a few short months later passed a similar, though currently somewhat smaller, tax called the Commerce Tax.

The Commerce Tax passed with a two-thirds majority in the Republican-controlled Assembly and Senate and was signed by a Republican governor.

In 2016 a group called RIP Commerce Tax filed an initiative petition to place repeal of the Commerce Tax on the 2016 ballot, but the effort stalled when, with only a month left until the deadline for gathering signatures, the courts ruled the wording of the petition failed to sufficiently warn voters that a tax repeal would unbalance the state budget — like that would come as a startling development to anyone.

This past week the same group, this time with a new moniker, Repeal the Commerce Tax, filed another petition, fixing the wording to satisfy the courts, and plans to begin gathering signatures.

The group is still headed by state Controller Ron Knecht, as president, and former Las Vegas City Councilman and state Sen. Bob Beers, as secretary-treasurer.

Knecht noted the group has started its petition drive earlier in order to allow for expected legal challenges. He said their lawyers advised them to use exactly the language the courts told them to use the last time.

“Essentially, we are saying here’s what the Legislature passed, do you all agree?” Knecht said in a recent interview. “Do you want to vote for it or against it. If you vote for it, you get the Commerce Tax. You vote against it, you repeal the Commerce Tax. You have the final word.”

The petition includes the entire text of the Commerce Tax law as well as a 200-word description of effect that mirrors the courts instruction to explain the impact repeal would have on the state budget. “They said use exactly what the two courts said and that’s what we did,” Knecht said. “That should make the description of effect pretty much bullet proof.”

By the time the Nevada Supreme Court ruled in 2015, the RIP Commerce Tax had already gathered 20,000 signatures of the 55,000 needed, but they had only a month left to gather signatures, and those 20,000 were ruled invalid.

Knecht said this time the group has joined with Americans for Prosperity for assistance in gathering signatures.

“It is true we have to gather twice as many signatures this time due to turnout in the two elections,” he noted. Petitioners must collect signatures equal to 10 percent of the total votes cast in the most recent general election in each of the state’s four Congressional Districts.

Because the 2016 election was a presidential one and twice as many votes were cast than in 2014, Knecht said the group must gather 112,000 signatures — 28,000 in each Congressional District — but they plan to gather 160,000 signatures to allow for signers who might not be qualified.

“Once the thing gets onto the ballot, the issue is going to be real simple: One, this is about jobs,” Knecht said. “The Commerce Tax is a job destroyer. Repealing it will be a real help. And, secondly, for all those people who think, oh, this is just about corporate taxes and fleecing the millionaires and billionaires, et cetera. Well, you’re wrong. As economists have proven many times over, business doesn’t pay tax, it collects it from its customers. This is about jobs and the burden on Nevada families and businesses.”

According to the petition’s new description of effect, the Commerce Tax is expected to generate about $102 million in the coming fiscal year, which Knecht noted is only about 1 percent of the state’s total revenues. The description notes that such a shortfall can be offset by cutting spending, drawing down the state rainy day fund, raising other taxes or some combination. Somehow the state managed to survive when the recession axed the state revenues by $536 million from 2008 to 2009.

The Commerce Tax imposes a gross receipts tax on all businesses grossing more than $4 million a year. It has different tax tables for 27 different industries — ranging from a low of 0.056 percent for mining to a high of 0.362 percent for rail transportation in 67 different levels of revenue. Those rates could easily be increased.

We urge Nevadans to sign the petition and to vote to repeal this end run on the state’s constitutional ban on an income tax.

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

Controller Ron Knecht, left, talks to attorney Craig Mueller during a 2016 court hearing on an effort to repeal the Commerce Tax. (R-J pix)

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Newspaper column: Lawmakers must finally address public worker retirement reform

Gov. Sandoval gives State of the State speech. (R-J photo)

Gov. Sandoval gives State of the State speech. (R-J photo)

In his State of the State speech this past week Gov. Brian Sandoval tossed out tax money like trinkets and candy from a Mardi Gras parade float — a couple million here for this or that education program, a few million there for a veterans’ home, millions for a medical school, more millions for an engineering school and pay raises for state employees.

“This session, my budget includes a 4 percent cost of living adjustment and increased funding for health benefits to recognize the shared sacrifice and dedication of our state employees,” the smiling governor said about his spending proposal for the coming two years.

Overall, Sandoval proposed a 10 percent increase in the general fund portion of the state budget, even though the cost of living increase for 2016 was only 2 percent.

What the governor did not address was how the taxpayers are going to pay for the commensurately higher retirement pensions that are tied to the salaries of those state employees.

Nor did he take note of the fact his proposed budget — total budget, not just the general fund — is 49 percent higher than the total budget he proposed when he first took office, while over the past decade the Nevada median household income has fallen 17 percent.

A part of the growth in state government spending has been due to burgeoning pensions for state employees, who upon retirement are guaranteed a percentage of their highest salary level — which officially is 70 percent after 25 years, but can often top 100 percent after various pay add-ons and gimmicks are employed. Public employees in Nevada can retire in their 40s and get paid more in retirement than they were paid for actually working.

In 2008 the Las Vegas Chamber of Commerce called on the Legislature to change public employee retirement benefits from the current direct benefit plan to a direct contribution plan, similar to a 401(k), because the expenditures were growing at an unsustainable pace.

In 2011 a report drafted for the Nevada Policy Research Institute by Andrew Biggs, an economist with the American Enterprise Institute, concluded the Nevada Public Employees’ Retirement System is vastly underfunded by more than $40 billion.

“What people don’t realize,” Biggs said to a luncheon audience back then, “is your typical public sector pension plan is a lot more generous than what a typical person is going to get in the private sector. Let’s just take a person and run their wages through what they would get from PERS versus what they could get from a typical 401(k) plan combined with Social Security, because public employees here don’t participate in Social Security. They both pay the same amount on average. The total contribution is about the same, but the benefits for someone under PERS — for a full career employee — is somewhere around 50 percent higher.”

In 2015 Reno Republican Assemblyman Randy Kirner introduced Assembly Bill 190, which called for reforming PERS, which at the time was costing nearly $15,000 per Nevadan per year and growing.

The changes Kirner proposed would have applied to future state and local government workers and not current ones.

AB190 would have introduced a hybrid — part defined benefit, part defined contribution.

The bill also tied the minimum retirement age for receiving full benefits to that allowed under Social Security, though police officers and firefighters would be able to retire with full benefits 10 years earlier.

Kirner argued his bill would have a minimal impact on taxpayers, but the PERS administration claimed it would cost millions to implement. Kirner withdrew the bill so the funding could be studied and he could re-introduce it again this year, but Kirner decided to not seek re-election.

Instead, state Controller Ron Knecht has offered a bill nearly identical to Kirner’s, but it is questionable whether it will get much of a hearing before a Legislature that is now comprised of majority Democrats in both chambers.

This past summer NPRI’s Director of Transparency Research Robert Fellner released a 36-page report warning that if the economy stumbles the PERS “fantasy economic forecasts will be replaced by immediate bankruptcy — leaving every Silver State household with a sudden, implicit, $50,000-plus tax liability.”

Nevada lawmakers have been kicking this can down the road so long it is now a 55-gallon drum ready to explode.

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

Newspaper column: This little ‘Piggy’ is getting fat at the public trough

piggy

Back in the 1970s Wisconsin U.S. Sen. William Proxmire began handing out his monthly Golden Fleece Award, recognizing wasteful spending by government agencies, such as a $4 million advertising campaign by the Postal Service to encourage Americans to write more letters to each other.

After his retirement, along came Oklahoma U.S. Sen. Tom Coburn, who published an annual “Wastebook” list of 100 wasteful government boondoggles and debacles, which one year criticized the IRS for allowing $17.5 million in tax deductions for business expenses at Nevada brothels, such as breast implants, costumes and “equipment.”

A couple of years ago the folks at the Nevada Policy Research Institute picked up the cudgel and gave it a Nevada spin. “The Nevada Piglet Book” each year compiled a compendium of pork, profligacy, political proclivities and petty poltroonery.

Apparently the porker has grown, because this year’s recently published 28-page edition is titled, “The Nevada Piggy Book 2016.” Perhaps in a few years, at the current rate of state and local government growth in spending, it will be called “The Nevada Hog Book.”

One of this year’s new entries is a slap on the wrist for a $12.1 million, 3-mile demonstration bike path along the shores of Lake Tahoe, administered by the Tahoe Transportation District. Yes, that is more than $4 million per mile. You can build a four-lane divided highway for less than that.

The goal is to eventually build a bike path around the entire lake, which is more than 70 miles in circumference.

“The Highway Safety Research Center, housed within North Carolina’s UNC-Chapel Hill complex, estimates that constructing a bike path can cost anywhere from $5,000 to $500,000 per mile. …” the authors of the Piggy Book note.

In another new entry, the NPRI publication takes aim at the Nevada Department of Wildlife’s penchant for purchasing more vehicles than it needs.

According to an audit, the agency in one recent year had 118 total pooled vehicles, but more than half — 64 — had been driven less than the required 8,400 miles in a year. Four vehicles had no recorded mileage at all.

“Reducing fleet size could result in annual savings of up to $244,000 and a one-time savings of up to $163,000 from disposal of excess vehicles,” NPRI quoted the audit as saying.

The bulk of the book was devoted to a perennial topic: overly generous public employee salaries and obscenely excessive retirement benefits.

The Piggy Book cited several examples of retirement benefits undreamed of in the private sector. One Nevada firefighter retired in his early 40s and immediately began drawing a $105,000 annual pension from the Nevada Public Employee Retirement System. Though he had worked only 20 years, he “purchased” five years of entitlement to qualify for a 25-year pension level.

That firefighter is currently working full-time at a California fire department and being paid more than $300,000 a year. If he lives to his mid-80s, his annual Nevada pension alone, after compounding up to 5 percent a year in cost of living adjustments, could exceed $500,000 a year, NPRI calculates.

A Nevada police officer, the book tells us, retired at age 38 and began drawing $110,000 a year in pension money. Considering his life expectancy and cost adjustments, his total taxpayer funded pension should exceed $13 million.

“Nevadans’ tax dollars should go to providing public services,” the authors argue. “They should not be funding million-dollar retirement benefits for people out to amass personal fortunes by exploiting the bad public-policy decisions of naïve, ignorant or tainted politicians.”

The book further notes that local government salaries for police, firefighters and corrections officers rank fourth highest in the nation when adjusted for cost of living, while the adjusted wages of average Nevadans rank 46th.

The trajectory is for things to get worse before they get better.

As state Controller Ron Knecht pointed out recently, over the past decade total state spending (and that does not include local government agencies) grew 55 percent, while Nevadan’s incomes grew only 27 percent.

The term for that is unsustainable.

NPRI concludes, “For the interest groups that have covertly taken up residence within the public trough, trimming government is manifestly verboten. They have come to believe that — regardless of the waste, fraud and abuse that routinely takes place — they can always squeeze a few more billion dollars from the naïve, hard-working taxpayers.”

A version of this column appeared this week in many of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel and the Lincoln County Record — and the Elko Daily Free Press.
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Editorial: Fallacious Supreme Court ruling probably dooms commerce tax referendum

Though anyone capable of signing a petition with anything other than an “X” understands that a vote to repeal a tax would require lawmakers to either cut spending or find revenue elsewhere, the Nevada Supreme Court in its infinite pettifogging wisdom ruled this past week that Nevada voters are just too darned dimwitted to understand this and must be lead by the nose.

The unanimous opinion found the description on the petition seeking to repeal the commerce tax passed by the 2015 Legislature failed to tell signers of this fact and therefore was misleading and deceptive.

The group RIP Commerce Tax, headed by state Controller Ron Knecht, had already gathered 20,000 signatures of the 55,000 needed by a June 21 deadline before it suspended circulation of the petition pending the court’s decision. Now those 20,000 signatures are invalid and the process must start over with only a month to go.

Knecht vows to try to qualify the referendum for the November ballot, though he concedes the chance of getting enough signatures is uncertain.

He plans to quickly submit new wording for the 200-word petition description to the district court judge who had approved the previous description. The new description lifts language and figures from the Supreme Court opinion and adds a sentence saying: “So, there would be a net $74.9 million reduction in state fiscal year 2016/17 revenues, technically unbalancing the budget, and $59.9 million in succeeding years.”

The commerce tax would impose a gross receipts tax on all businesses grossing more than $4 million a year. It has different tax tables for 27 different industries — ranging from a low of 0.056 percent for mining to a high of 0.362 percent for rail transportation in 67 different levels of revenue. Future legislatures could increase rates or lower the threshold.

Lawmakers passed the commerce tax with a two-thirds majority in a Republican-controlled Assembly and Senate for signature by a Republican governor, even though voters turned down at the ballot box the previous November a nearly identical, though considerably larger, version of the commerce tax by a margin of 4-to-1.

The Supreme Court ruling said repeal of the tax would lead to an unbalanced budget, which the state Constitution prohibits, and “the description of effect makes no mention whatsoever of this critical consequence. Accordingly, we conclude that the referendum’s description is deceptive for failing to accurately identify the practical ramification of the commerce tax’s disapproval, and any signatures obtained on petitions with this misleading description are invalid.”

Apparently, snipping $60 million a year from a multi-billion-dollar state budget creates a crisis, even though in the real world the state managed to survive when the recession axed the state revenues by $536 million from 2008 to 2009.

Also, Michael Schaus, communications director at the Nevada Policy Research Institute, points out just how phony that balanced budget argument is.

The revenue from the current commerce tax will be deposited in the state treasury by Aug. 15 — before the November elections — meaning no revenue loss this fiscal year. The Legislature meets in February 2017, giving it ample time to deal with a potential dearth of commerce tax revenue by next August.

“There would be no crisis, no devastation of government agencies and no budgetary hole,” Schaus writes. “The court’s ruling says the petition must now include language warning against a hole in the state budget — a hole that, in truth, is imaginary.”

Though odds of the tax repeal being on the November ballot are rather long, having it on the ballot might create a quandary for astute voters.

Knecht’s petition description — old and new — notes that disapproval of the commerce tax “does not prohibit the Legislature from enacting future legislation that imposes a commerce tax,” conceivably an even more onerous one.

But the Supreme Court ruling notes that if voters let the commerce tax stand, it “shall not be amended, annulled, repealed, set aside, suspended or in any way made inoperative except by the direct vote of the people.” Doesn’t not amended mean not increased?

It would be tempting to freeze it from legislative meddling, because, as the lawyer for RIP Commerce Tax pointed out in oral arguments before the court, when the income tax was created in 1913 it was supposed to be only on millionaires, but today everyone pays. “Now, the two things I’ve noticed about government, it never gets any smaller, taxes never go down,” the lawyer said.

If given the opportunity, we encourage voters to sign the petition so we might face just such a quandary.

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

Update: On Friday a Carson City judge approved new language for the petition that includes a mention of the deficit that would be created by repeal of the tax, according to the Las Vegas newspaper.

 

Editorial: Courts should let the voters decide on commerce tax — again

In 2014 the voters of Nevada rejected by a 4-to-1 margin a tax on company revenues being pushed by the state teachers’ union.

Instead, the 2015 Legislature adopted a smaller version of the same job killing business margin tax — this time dubbed a commerce tax — despite the myriad arguments against it.

Whether the voters will get a chance again this November to reject this business tax now lies in the hands of the Nevada Supreme Court.

A group headed by Nevada Controller Ron Knecht plans to circulate a petition to place a referendum before the voters to repeal the commerce tax, which is estimated to raise $60 million a year as part of Gov. Brian Sandoval’s $1.5 billion package of new and higher taxes for the biennium.

Nevada Assistant State Controller Geoffrey Lawrence and Controller Ron Knecht present an alternative to Gov. Brian Sandoval‘s tax plan in May. (R-J photo)

In November District Judge James Wilson of Carson City rejected a constitutional challenge to the petition by a group calling itself the Coalition for Nevada’s Future, but this past week the group filed an appeal with the state’s high court. Nevada Assistant State Controller Geoffrey Lawrence and Controller Ron Knecht present an alternative to Gov. Brian Sandoval‘s tax plan in May. (R-J photo)

Judge Wilson had ruled, “The court concludes even if the Legislature enacts a statute, the people do not lose their constitutional right to submit the statute to a vote of the people.”

A separate effort to repeal the entire $1.5 billion tax hike was rejected by another judge but appeals continue and refiling of the petition is possible.

Backers of the commerce tax repeal must gather 55,000 signatures by June 21 to qualify for the November ballot.

While the commerce tax does not currently tax businesses nearly as aggressively as the teachers’ union version, it has the potential to grow over time and promises to be costly for businesses to be able to comply. As written, it has different tax rates for 27 different industries — ranging from a low of 0.056 percent for mining to a high of 0.362 percent for rail transportation in 67 different levels of revenue. And there is nothing to prevent future legislatures from ratcheting up those rates.

The tax rates on gross receipts vary because the profit margins in different industries vary greatly, but the law’s tax tables ignore the fact that profit can vary within an industry, too.

Gov. Sandoval has promised to fight the repeal efforts, calling such petitions “a wrongheaded attack on the children and families of Nevada. Supported by more than seventy percent of legislators, the revenue the petition seeks to eliminate will go directly to the classroom and give teachers the resources to deliver a quality education.”

Do 70 percent of lawmakers trump 80 percent of voters? We think not. The arguments against the so-called margin tax still apply to the commerce tax and are compelling.

The margin tax got on the 2014 ballot through the referendum process. The referendum process should be allowed to give voters a chance to repeal this tax that was already rejected once.

The Nevada Supreme Court should expedite this commerce tax case to give petitioners time to gather the necessary signatures by the mid-summer deadline.

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

Controller offers plan to spend more without raising taxes … sort of

While Gov. Brian Sandoval’s revised tax hiking plan, hatched behind closed doors, warranted banner play in the Las Vegas newspaper today, Controller Ron Knecht’s public presentation of an alternative plan that spends nearly as much but raises no taxes got less than short shrift in the news coverage. It got no shrift. The only mention came in a liberal column pooh-poohing it as a waste of time.

Sandoval’s plan basically shifts his margin tax-lite business license fee to a margin tax-lite “commerce” tax. Either way it will require a two-thirds vote in both houses of the Legislature.

Knecht’s plan does not — although it takes a bit of sleight of hand to avoid the tax hike label.

During a couple hours in front of a skeptical Assembly taxation committee, Knecht outlined his proposal which would spend $6.9 billion instead of the $7.3 billion in the governor’s plan. He calls in the Budget Plan for Growth. Both increase education spending.

Knecht noted that relative to the economy, state revenues have grown 19 percent since 2008. “Our conclusion is: The state of Nevada has a spending problem, not a revenue problem,” he said.

The bulk of Knecht’s increases in revenue for the next biennium — $744 million — would come from requiring local governments to calculate what they would save if public employees paid more into their retirement system — 7 percent for most and more than 10 percent for public safety workers. Then the local governments would write a check to the state for that amount.

Knecht said this will move the local public employees toward parity with state employees, who contribute twice as much of their salaries toward retirement. It also could amount to big cuts in salaries if local governments can’t find other funds to cover that $744 million. The controller said the legislative lawyers say this is not a tax and would not need a two-thirds vote.

Knecht’s plan is not even in bill form, and the governor’s revision need to be written up in bill form.

The Budget Plan for Growth has the advantage of taking less of a bite out of the private sector, thus allowing economic growth, which would result in higher revenue generation for the state.

How many special sessions will it take to pass a budget?

Here are key points in the BPfG proposal.

Here are key points in the BPfG proposal. The Economic Forum cut the estimated revenue because of all the tax abatements the governor was handing out to billionaires like Elon Musk and his Tesla battery plant.

This is how BPfG brings in revenue.

This is how BPfG brings in revenue.

This graph shows the inequity between private sector pay and local government pay.

This graph shows the inequity between private sector pay and local government pay.

This graph compares Knecht spending projections to Sandoval's.

This graph compares Knecht spending projections to Sandoval’s.

The PowerPoint: BPfG Taxation Committee Presentation 14May15

 

 

 

 

Only four state senators vote against governor’s margin tax lite

Only four state senators had the gumption today to vote against the governor’s margin tax lite, which taxes businesses based on their gross receipts in the same way as the proposal on November’s ballot, which was defeated by voters by a 4-to-1 margin.

The four were Republicans Pete Giocoechea, Donald Gustavson, Scott Hammond and James Settelmeyer. That means seven Republicans and all the Democrats voted for Senate Bill 252, making the final vote 17-4. It now goes to the Assembly, where its fate is unknown.

State Treasurer Dan Schwartz and Controller Ron Knecht jointly sent out a press release calling on the Assembly to reject the bill. Press release on SB252

“To propose a tax that has been explicitly rejected by Nevada voters displays a blatant disregard for the democratic process. The Governor has called for alternatives. Those have been provided. They should be considered along with reprioritizing several proposed expenditures,” said Schwartz.

Assembly member Michele Fiore sent out an email pointing out that SB252 has 1,811 unique tax brackets based upon gross receipts. (The state Constitution states: “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation …”)

She noted that the unemployment rate is still 7.1 percent in Nevada and “the last thing the Legislature should be doing is taking money out of the private sector, where it’s needed to create jobs, and transferring it to the public sector so that government can continue to spend beyond its means.”

Nevada Policy Research Institute’s Executive Vice President Victor Joecks commented:

“The voters of Nevada made clear in November that they do not want to impose a gross-receipts business tax, yet today the Senate passed a similar tax. Unlike the 17 Senators who voted in favor of SB252, Nevada voters recognized that raising taxes on businesses that are struggling or even losing money will only hurt families and parents throughout Nevada.”

Actually, as a survey reported by NPRI points out, Nevada voters apparently aren’t paying any attentionThe poll, conducted by Google Consumer Surveys in March, found 89.4 percent either did not know Sandoval supports the largest tax increase in Nevada history or mistakenly thought the governor supports keeping taxes low.

Gov. Brian Sandoval has said the so-called business license fee based on gross receipts will eventually rake in $250 million a year. The Nevada Registered Agent Association commissioned a study that says his figure is off by $65 million. NRAA Study

When Texas launched its margin tax it was expected to bring in $5.9 billion a year, but only netted $4.45 billion its first year and $4 billion the next.

Never mind that most of what Sandoval plans to spend on improving education will not work and has not worked when tried elsewhere.

Giocoechea

 

 

 

 

 

 

 

 

 

Gustavson

Hammond

Settelmeyer