Newspaper column: Nevada state and local taxes already too regressive

In this presidential election year there has been an ongoing and vigorous debate, nay, a knock-down-drag-out fight over the question of whether the wealthy pay their fair share of federal taxes. There is ample ammo for both sides of that argument.

But when it comes to state and local taxes there is no debate. The tax data from nearly every state shows those tax practices are highly regressive, meaning the poorer citizens pay a disproportionately higher share of their income in state and local taxes than wealthier citizens, which is simply unfair.

This was detailed by an October 2018 analysis by the Washington-based Institute on Taxation & Economic Policy. The study found that on average nationally the lowest-income 20 percent of taxpayers face a state and local tax rate more than 50 percent higher than the top 1 percent of households. The nationwide average effective state and local tax rate is 11.4 percent for the lowest-income 20 percent of individuals and families, 9.9 percent for the middle 20 percent and 7.4 percent for the top 1 percent. 

The institute concludes, “Most state and local tax systems worsen income inequality by making incomes more unequal after collecting state and local taxes.”

The study found that Nevada was the fifth worst state in the nation for taxation inequity. The effective tax rate for the poorest 20 percent of Nevadans was 10.2 percent. For the middle 60 percent the rate was 7.4 percent. For the top 1 percent the rate was a paltry 1.9 percent — the lowest tax rate in the nation for that earnings group. This inequity is due to reliance on sales and excise taxes, because poorer families must spend a higher portion of their income on taxed necessities. 

Of course, when the Clark County teachers union earlier this year launched two tax hiking ballot initiatives to increase funding for education the biggest was a proposal to hike the sales tax by $1.1 billion a year. The other was to hike the gaming tax to raise $330 million a year.

The sales tax initiative would increase the Local School Support Tax — a part of the statewide sales tax — from 2.6 percent to 4.1 percent, a 58 percent increase. If the union gathers enough petition signatures it would go before the Legislature in the spring of 2021, tax loving Democrats already hold a supermajority in the Assembly and are one shy of a supermajority in the state Senate. Thus this November’s General Election is significant at the state level, too. If lawmakers fail to impose the taxes, they would go before the voters on the November 2022 ballot. 

If passed, in Clark and Lincoln counties the overall sales tax would jump from 8.375 percent to 9.875 percent, among the highest rates in the country. In Mineral, Eureka and Esmeralda counties, which have the lowest current sales tax rates in the state, the tax would jump from 6.85 percent to 8.35 percent.

The impact on poorer families would be devastating. 

Earlier this month the board of directors of the Nevada Taxpayers Association (NTA) announced its opposition to both the sales and gaming tax propositions, saying such a drastic change in the taxation policy should be thoroughly debated by all stakeholders and that should be conducted via the standard legislative process, not through a ballot initiative.

“An increase of $1 billion in annual sales tax revenue is likely to affect tax neutrality and change consumer behavior,” the NTA said in a press release. “The exporting of the tax burden to non-residents is also of concern given the importance of tourists to our statewide economy. As with the Sales Tax, an annual increase in the Gross Gaming Tax of $330 million is very likely to cause unpredictable economic consequences. The focus of this tax on one industry is prone to have a harmful effect on gaming companies and their employees.” 

The NTA also pointed out that the two tax hikes would represent an annual increase of 28 percent in taxation, but the propositions contain no performance benchmarks that would assure taxpayers get a return on their investment.

In fact, most of the performance benchmarks enacted when lawmakers in 2015 approved a $1.5 billion tax hike targeted to improve education have been rescinded. No longer are third graders who can’t read required to be held back a year, and while student achievement was once 50 percent of a teacher’s evaluation that has been cut to 15 percent.

These tax proposals will hurt poor families without ensuring education improvements. 

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.

Editorial: Online sales tax collection might not be worth it

Before jumping on the bandwagon and trying to snag sales tax revenue from out-of-state online retailers — which a recent U.S. Supreme Court ruling now allows — Nevada should crunch the numbers to make sure it is worth the effort.

Overturning previous case law the court ruled 5-4 in a case out of South Dakota that local jurisdictions may collect sales taxes from online sellers of goods even if the business has no physical presence there. It has always been the law that the buyers could pay the sales tax, but almost no one ever does.

Nevada Democrats immediately began salivating over this potential source of new revenue to spend on their pet causes.

The major online retailers Amazon, Walmart and Target already have a presence in every state and pay sales taxes, though third-party vendors who use those platforms and ones such as eBay and Etsy are less likely to pay the tax.

According to a press release put out by Nevada Department of Taxation Executive Director Bill Anderson and reported by The Nevada Independent, “In terms of the direct impact on General Fund revenue in the Silver State, this increase in taxable sales has the potential to increase the State’s 2 percent sales tax collections by nearly $30 million annually above what they would otherwise be.”

The potential.

But the state currently collects almost $1.1 billion a year in sales taxes, meaning the increase would amount to less than a 3 percent increase. What would be the cost of trying to collect from thousands of disparate and sometimes hard-to-find retailers?

The cost of collecting and enforcing such sales taxes could easily outstrip the revenue very quickly.

Then there is the question of just how long these sheep will be around for the fleecing.

The Wall Street Journal reports that there are more than 10,000 taxing jurisdictions in the country, which prompted members of the House Judiciary Committee to issue a statement calling the court ruling a “nightmare” for American businesses, adding that the decision would “stifle online commerce, close businesses, and ultimately harm consumers.”

You can’t collect from sellers who no longer exist.

A spokesman for Democratic gubernatorial candidate Steve Sisolak told the Las Vegas newspaper, “The businesses owned by and employing Nevadans are the backbone of our economy. As governor, Steve will work to ensure that brick-and-mortar stores and Nevada’s small businesses are on equal footing with online retailers.”

The campaign of Republican candidate for governor Adam Laxalt was more cautious. “This will have to be looked at in more detail now that the Supreme Court has ruled on this,” a Laxalt campaign spokesman said in a statement.

The total sales tax rate in Nevada varies by jurisdiction. The state collects 2 percent for itself, plus 2.6 percent for funding education, thus the rates in the counties varies from a low of 6.85 percent to a high of 8.25 percent.

Complying with all those different tax rates would be a huge and possibly impossible burden for small online businesses.

Perhaps the best answer is for Congress to step in and use its Commerce Clause power to write rules that either bar sales tax collection for smaller retailers and individuals or at least make the rules uniform across state and local jurisdictions.

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.

Newspaper column: Study calls for simple and fair taxation

The word that will be buzzing through the halls of the Nevada Legislature like a swarm of bees from February until June will be “taxes” — whether to raise them, create new ones or fix the ones we have.

Our lawmakers would do well to heed the advice in a study by the Tax Foundation titled “Simplifying Nevada’s Taxes: A Framework for the Future.”

Commissioned by the Las Vegas Metro Chamber of Commerce, the 80-page report remains neutral on just how much tax revenue the state needs but rather concentrates on reforming the tax system so that it will ensure Nevada is economically competitive and fair.

“Nevada should consider fixing what is broken with the current tax system instead of pursuing a brand new tax to layer on top of the narrowly based, complex existing taxes,” the Tax Foundation suggests. “A number of elements of the tax system exist only in Nevada, and those in particular should be scrutinized. Changes should address state revenue volatility, be fair, and reduce carve-outs that plague the system.”

In a criticism that should be no surprise to most Nevadans, the study found the state relies too heavily on volatile tourism taxes and in general the tax structure is narrow, complex and inequitable. Its base should be broadened and rates lowered.

Though a number of Nevada’s panoply of taxes — from insurance taxes to car rental fees to real property transfer taxes — come in for criticism, the two that deserve the closest scrutiny are the ones that pick the pockets of every Nevadan — sales and property, which combined generate more than 65 percent of state and local tax revenue.

One of the main problems with Nevada’s sales tax system is that it has failed to fairly reflect Americans’ changing spending habits over the decades. While in the post-World War II era our personal consumer spending was about 60 percent on goods and 40 percent on services, today’s spending ratio is reversed with only about 35 percent going for goods and the rest on services — which Nevada mostly does not tax.

The study suggests that taxing services would be more equitable and stable and allow the overall statewide average sales tax rate of nearly 8 percent to be lowered. But since the sales tax is regressive — taking a bigger percentage bite out of the incomes of poorer families — some services should be exempted, such as medical and hospital care, just as food and medicine are exempt now.

In addition, the study suggests simply repealing the state’s Live Entertainment Tax, which has a labyrinth of exemptions and exclusions that make it expensive and nearly impossible to enforce, and applying the sales tax to such events. For example, some of Nevada’s biggest events are specifically and questionably exempted from the Live Entertainment Tax — Burning Man, minor league baseball, the Electric Daisy Carnival and NASCAR’s Nextel Cup series.

As for property taxes, the Tax Foundation found Nevada’s system to be unique in the nation. No other state assesses property values for tax purposes the way Nevada does.

“Unique features include a depreciation factor and a ‘ratchet’ effect in the property tax cap that has presented challenges for local governments,” the report says. “Although the concerns that prompted these features remain valid, the resulting system is cumbersome, convoluted, and unstable, especially in the wake of a recession.”

The “ratchet” referred to is the law that was enacted during the state’s boom years when property values were escalating exponentially every year. To curb the impact, lawmakers capped the annual increase in property taxes at 3 percent for residences and 8 percent for commercial property. Since prices fell during the recession, state and local governments are lagging in revenue recovery due to the caps.

But the biggest difference in Nevada is that the tax is based on replacement value rather than market value. In addition, Nevada is unique in applying a depreciation factor on property even though property seldom actually depreciates. The 1.5 percent annual depreciation for up to 50 years means a person living in a newer house than a neighbor with an older house of the same value may be paying considerably more in taxes.

The Tax Foundation’s analysis should be closely studied by our lawmakers, not as a way to increase taxes, but as a means of achieving fairness, stability and predictability.

In his State of the State speech Gov. Brian Sandoval ignored everything the study recommended and made some unequal taxes even more unequal.

 A version of this column can be found online at The Ely Times, Mesquite Local News and the Elko Daily Free Press.

Congress needs to allow Nevadans to deduct sales tax from income tax

If the lame duck session of Congress does nothing else, it must pass an extension of the federal income tax deduction for state and local sales taxes.

Currently state and local income taxes are deductible but the sales tax deduction has expired. Seven states have no state income taxes to deduct, leaving the sales tax as the main comparable deduction. And time is running out.

In 2012 the average Nevada tax filer was able to deduct $332 from federal income taxes, according a Pew Charitable Trusts analysis of Internal Revenue Service data.

Without an extension, many Nevadans are basically facing a tax hike come April 15.

We don’t call on Congress to make the sales tax deduction permanent, but merely to fix it now in the name of fairness one more time, then in the Republican-controlled Congress in 2015 there should be real tax reform.

The current hodge-podge of tax deductions and exemptions and breaks and dodges is entirely unfair and inequitable.

The residents of high tax states send less money to Washington per dollar earned than the residents of states with lower taxes. For example, Illinois recently raised its state income tax rate by 2 percentage-points, but since that was deductible from federal income tax, Illinois basically sent the bill to the other 49 states.

Instead of permanently keeping the sales tax deduction, our representatives would better serve their constituents by introducing a bill eliminating the deduction for all state and local taxes — yes, including property taxes — while lowering the federal income tax rate for everyone, including those who don’t qualify for itemized deductions.

Currently, tax filers can choose either the standard deduction or may itemize deductions for certain expenses, including some taxes. The American Jobs Creation Act of 2004 allowed taxpayers who itemize to deduct state and local sales taxes or state and local income taxes. The American Taxpayer Relief Act of 2012 ended the sales tax deduction at the end of 2013.

The Congressional Budget Office has stated, “The deduction for state and local taxes is effectively a federal subsidy to state and local governments; that means the federal government essentially pays a share of people’s state and local taxes. Therefore, the deduction indirectly finances spending by those governments at the expense of other uses of federal revenues.”

In other words, the CBO says, state and local tax deductions largely benefit wealthier taxpayers who can itemize and live in states with high local tax rates.

A quick fix to make sales taxes deductible should be a priority for Nevada’s Washington delegation.

Newspaper column: Sales tax deduction won’t level playing field that is badly titled

Nevada’s Sen. Dean Heller is pushing a bill that would make permanent the federal income tax deductions for state and local sales taxes.

Currently the state and local incomes taxes are deductible but sales taxes have been added as deductibles a year at a time, making it difficult to plan ahead, as reported in this week’s newspaper column, available online at The Ely Times and the Elko Daily Free Press. Heller argued his bill would help level an uneven playing field by ensuring states like Nevada are afforded the same treatment in the federal tax code as states with an income tax. Nevada is one of nine states with no state income tax.

Dean Heller

The bill addresses a very real problem, but with an inadequate solution.

It is a fairness issue, but not one about the kind of local taxes allowed to be deducted, but rather the amount. The deduction of state and local taxes of any kind amounts to a subsidy for high-wage, high-tax states, which happen to be mostly Democrat-controlled.

Seven states claim 90 percent of the deductions for state and local taxes — income, sales, property, etc. They are New York, New Jersey, California, Pennsylvania, Maryland, Illinois and Massachusetts, according to the Tax Policy Center. Because there is no cap on these deductions most of the tax savings goes to the highest wage earners.

Using 2010 statistical data from the IRS, I found Californians who filed for state and local income tax deductions claimed deductions of $10,700 per return, and almost half of those returns reported earnings in excess of $100,000. Nevadans who filed for the state and local sales tax deduction claimed only $1,430 per return.

Instead of permanently keeping the sales tax deduction, Heller would better serve his constituents by introducing a bill eliminating the deduction for all state and local taxes while lowering the federal income tax rate a commensurate point or two for everyone, including those who don’t qualify for itemized deductions. That would be fair — perhaps, next to impossible to pass, but fair.

Read the entire column at the Ely or Elko websites.

Heller’s sales tax deduction bill tackles the right problem with the wrong solution

Nevada’s junior senator, Dean Heller, this week introduced a bill that would make permanent the federal income tax deductions for state and local sales taxes, rather than having Congress renew the deductions practically every year.

Dean Heller

It addresses a very real problem, but with the wrong solution.

In a press release Heller stated:

“Taxpayers in Nevada benefit greatly from this common sense tax relief. Making the state and local sales tax deduction permanent would help ease some of the stress many middle-class families in the Silver State are feeling every day. This bill would also help encourage economic growth by attracting new business, generating jobs, and promoting investment in local economies. The Senate should move swiftly to pass this legislation so Nevadans can benefit from this much-needed tax relief.”

The state and local sales tax deduction for Nevadans amounted to only $449 million, or less than half a billion dollars. (Wall Street Journal graphic)

Nevada is one of nine states with no state income tax, which has been deductible practically from the start of the federal income tax. The other states that would be affected by Heller’s bill are Texas, Florida, Tennessee, Washington, Wyoming, South Dakota, Alaska and New Hampshire.

Heller argued his bill would help level an uneven playing field by ensuring states like Nevada are afforded the same treatment in the federal tax code as states with an income tax.

Surely Nevadans should not be denied a chance to get our snouts in the deduction trough, you say. That’s only fair.

Actually, there is nothing fair about allowing a deduction from federal income tax for state and local taxes, because the level of taxation the various states heap on their citizens varies wildly. The deduction amounts to a subsidy for high-tax states, which, by the way, happen to be mostly Democrat-controlled.

In 2010, according to a Wall Street Journal analysis of IRS data, five liberal states — California, New York, New Jersey, Maryland and Massachusetts — accounted for half of all deductions allowed for state income taxes.

“The inequity is especially stark if we compare this to states without an income tax,” the Journal editorial continues. “The average state and local income-tax deduction claimed per tax return in 2010 was $4,109 in New York and $3,819 in Connecticut. But the average Texan claimed only about $100, and the average Florida deduction was a mere $219. No wonder New York Senator Chuck Schumer opposes tax reform.”

Using the same 2010 data from the IRS, I found Californians who filed for state and local income tax deductions claimed deductions of $10,700 per return, and almost half of those returns reported earnings in excess of $100,000. Nevadans who filed for the state and local sales tax deduction claimed only $1,430 per return. Calculated on a per capita basis, Californians claimed $2,116 in federal income tax deductions for each and every man, woman, child and illegal immigrant in the state when all state and local tax deductions are included, while Nevadans claimed only $166 each for sales tax deductions.

Heller should introduce a bill eliminating the deduction for all state and local taxes while lowering the income tax rate a commensurate point or two for everyone, including those who don’t qualify for itemized deductions. That would be fair. Perhaps, next to impossible to pass, but fair. It can be argued that the rest of the country is subsidizing that recent huge state income tax hike on “the rich” in California, because many there will simply deduct it from their federal income taxes, leaving those in other states to pick up the slack in federal spending eventually.

Allowing federal income taxpayers to deduct local taxes must be a terrible idea, because The New York Times is for it. The paper said in an editorial in December:

“The theory behind the deduction was that the amount paid to states in taxes is not really part of an individual’s disposable income, because it is obligatory and, therefore, should not be taxed twice. Over time, the deduction has become the equivalent of a subsidy from the federal government to states that believe in a strong and active government. That may infuriate conservatives in low-tax states like Texas, who hate subsidizing states with different views of government’s role, but it’s actually a good thing for the country.

“The deduction is Washington’s way of supporting states that support their most vulnerable citizens and neediest cities. The seven states that account for 90 percent of state and local tax deductions (including sales and property taxes) — New York, New Jersey, California, Pennsylvania, Maryland, Illinois and Massachusetts — generally do a better job of providing for the health and welfare of their citizens, and are more willing to pay for institutions that are good for society as a whole.”

What a bogus argument. It is, as they admitted, a subsidy. It also means the residents of certain states are carrying less than their fair share of the federal tax burden. Also in December a Wall Street Journal editorial explained the problem:

“The state and local tax loophole helps disperse and disguise the real cost of big government. As Mr. Obama likes to say, this is reverse Robin Hood.

“All of which helps to explain what appears to be the ebbing liberal support for a tax reform that reduces rates in return for fewer deductions. Democrats in Congress once supported that kind of reform. But these days they tend to represent states with ever-higher tax rates that prop up state and local governments dominated by public unions that demand ever-higher pay and benefits. The resulting state tax burden would be intolerable if much of it weren’t passed off on Uncle Sam.”

If you want a level playing field, Sen. Heller, file a bill eliminating the deductions for all state and local taxes — income, sales, property, etc. Federal taxes should burden individuals equally, not give a break to those who live in spendthrift states like California and New York.

This sales tax deduction bill provides little more than crumbs while other states are gorging on a five-course meal.

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