Tuesday, January 21, 2003

"HOW HIGH I WILL GO, I CANNOT SAY:" That was Kenny Guinn last month, when queried about the magnitude of tax increases he would propose in his state budget. Well, Guinn gave his State of the State Address last night, and the total is in: $1.1 billion over the next biennium, or a 28 percent hike in revenues. Guinn wants to triple tobacco taxes; raise alcohol taxes by 89 percent; increase property taxes by 15 cents per $100 of assessed value; triple the $100-per-employee business license tax (the principal source of revenue from private employers) to $300; impose a new 7.3 percent "entertainment" tax on movie tickets, miniature golf, etc.; and -- the big one -- enact a 0.25 percent tax on the gross receipts of all businesses in the state (with casinos paying an additional 0.25 percent tax on their gaming revenues).

While the new taxes attracted the most attention initially, here's what Guinn offered state residents as a show of good faith that the government would make "sacrifices" as well: nothing. Well, he did promise to eliminate 500 state positions that had been "frozen" and thus unfilled since 1999. But even these job "cuts" are bogus, because his budget adds 184 new DMV employees and 430 other positions. In addition to the tax hikes, Guinn proposed more than $1.3 billion in new spending over the biennium, a 37 percent increase. Roughly $1 billion of the new spending would expand current programs: $530 million to boost per-pupil spending and to give bonuses to certain new teacher hires; a 2 percent overall pay hike for teachers; $24.2 million to start a full-day kindergarten program; $175 million more to the university system; $242 million in various "job-creating" public works programs, over and above a series of bond measures that were passed by voters in November.

This may be the first time since the Great Depression an elected chief executive has proposed a massive tax increase and major spending hikes during an economic slump. While watching the speech on TV, my left-wing columnist buddy Steve Sebelius shouted, "He wants to raise taxes even higher than I do!"

Among the speech's many low points was this gem, targeted at the handful of Republican lawmakers (not to mention the thousands of Nevada residents) who might prefer fiscal restraint over a new round of government looting:

"To me, this [cutting spending] is not a choice worthy of our citizens. It is not a choice for leaders, but a choice of political cowardice."

Republican Asssemblyman Bob Beers, the Las Vegas lawmaker who put together some $479 million in spending cuts from current programs, had this response:

‘‘Political cowardice comes in many shapes and tones. Another person may suggest that -- taking a look at the landscape, with a flat economy -- raising citizens’ taxes 30 to 35 percent is political cowardice.’’

Another outright lie by Guinn dealt with "shrinking" new revenues:

"In 1997, the Legislature had $543 millino in new revenue to fund expenses for new school enrollments, mandated, healthcare and state services. By 1999, new reveneus dropped to $378 million, and in 2001 they were down to $150 million. This trend has worsened. This biennium, we have just $24 million to pay for the needs of this growing state."

Bullshit. These "new revenues" were in fact surpluses that were left over after the Legislature had enacted its two-year budgets. In other words, the state was raking in cash faster than the sticky-fingered politicians could spend it! In fact, Nevada is one of only three Western states where tax revenues increased in the past fiscal year. But the appetite of the politicians and the bureaucracies is insatiable.

The Nevada Policy Research Institute, the state's free-market think tank, has put together a terrific analysis of the budget mess, its origins, and suggested ways out. The link to the package of stories is here.

Why is Kenny Guinn launching an expansion of government unheard of since the Great Society? Sadly, Guinn appears to be that most dangerous of characters: an elected official in search of a legacy. It wouldn't be good enough for Guinn -- a lifelong government management type whose primary experience in the "private sector" was as an executive for the gas company -- to complete two terms as governor, shepherding the state through a period of unprecedented growth and then a serious recession without raising taxes.

Oh, no. True to his nature as a bureaucrat -- he was Clark County school superintendent and president of UNLV -- Guinn believes his legacy will be defined by the number of new programs he gets past lawmakers, or how high he can push public employees' salaries. Perhaps in his heart of hearts, he honestly believes there's a positive correlation between the state's prosperity and the size of the public sector.

The gaming industry, which handpicked Guinn for the job in 1998, confident he would protect its interests, will not protest, so long as the casinos don't have to pick up much of the tab. Currently, the casinos provide about half the state's general fund revenue. That's by design. When gambling was legalized statewide in 1931, the casinos agreed to become a cash cow for state government: Grant us status as a regulated, privileged industry, and we'll be Carson City's ATM. If you need money, come to us, and we'll provide it.

In recent years, as the gambling industry has spread to other states, and casinos have cleaned themselves up and become respectable businesses, Nevada's gambling halls have attempted to renege on their earlier agreement and make other businesses pay their "fair share" of taxes. Meaning: Don't tax us, get the other guys.

That's why this debate will be contentious. To the extent Nevada's economy has diversified beyond tourist-oriented businesses and retail, the source of that growth has come from companies that located here precisely to escape oppressive taxes elsewhere. A few examples:

Microsoft located a division which licenses software to Reno a few years back. The move saved Redmond $9 million in Washington state taxes.

Citibank's credit card processing center is situated in a Las Vegas suburb.

Amazon.com's Southwest distribution center is located outside Reno.

Should Nevada "broaden its tax base" with higher taxes on nongaming businesses, these companies could easily leave the state, taking their relatively high-paid work force with them.

Guinn's office reports that the state's general fund currently receives 71.2 percent of its funding from sales and gaming taxes. If Guinn's tax package is approved, that percentage would drop to roughly 57 percent. That's a dramatic shift in the state's tax base. Even the gaming industry's trade group, the Nevada Resort Association, says it would pay only about $40 million of the $1.1 billion in new taxes. That's hardly fair.

Odds are, Guinn will get most of this package, even though he needs a two-thirds majority in both houses of the Legislature to raise taxes. Republicans may be able to get some programs cut. Democrats may try to trim some of the more regressive taxes.

No matter what happens, though, Guinn has one dubious accomplishment to his credit: He's made it much more likely he'll be succeeded by a Democrat in 2006. It'll be no problem for any Democrat, from the far left or the center, to run to the right of Guinn -- he backed the largest tax increase in state history! -- and, by proxy, the GOP nominee. The sin taxes in the package are exceedingly regressive; and aside from the gross receipts tax, which has a $450,000 annual exemption, the business taxes pummel mom-and-pop entrepreneurs. Republican hopefuls will have to distance themselves from Guinn early and often. Thanks, Kenny.

No comments: