Taxes versus the economy

Monday, Feb. 14, 2011 | 2:01 a.m.

If there’s any lesson for Nevada to learn from the Great Recession, it’s this: If the state wants a more stable future, it will have to diversify the economy. Both Republican Gov. Brian Sandoval and Democrat leaders in the Legislature have acknowledged the need for that.

Both say the state could do better in its efforts to attract new business. The question is how, and as David McGrath Schwartz reported in Friday’s Las Vegas Sun, taxes are at the center of the discussion.

The main thrust in efforts to lure business here has been low taxes. In fact, any time the issue of tax increases comes up in the Legislature, opponents complain that an increase will keep businesses from coming here. However, if low taxes were the key to attracting new businesses, the state would have no problems. According to the nonpartisan Tax Foundation, Nevada has one of the best business climates in the nation — as it has for years.

The Nevada Development Authority, a nonprofit organization that tries to bring businesses here, uses low taxes as the lure to draw businesses away from Southern California. Democrats in the Legislature are complaining about the approach, which hasn’t worked. But Somer Hollingsworth, the group’s CEO, told Schwartz that he’s using what Nevada has.

“I certainly can’t sell our education system, can I? I have to have something,” he said.

Therein is the problem: Nevada has proudly advertised its low taxes while states with higher taxes have done better attracting businesses. Why? Because businesses look at more than just taxes. They want qualified workers, good schools and a high quality of life. Of course, to provide schools, infrastructure and other services that businesses look at, governments need money, and over the years, Nevada hasn’t been able to invest in them the way other states have.

Despite the ample evidence that the state’s tax code is badly broken and the services are lagging behind, the governor says now is not the time to raise taxes — as if there will ever be a time given his no-new-taxes pledge. Instead, the governor plans to make deep cuts in education and other services, setting the state further behind. That certainly can’t be good for business.

Unfortunately, too many politicians have taken a black-or-white issue on taxes, couching any discussion in hyperbolic terms. Conservatives often complain that tax increases are “job killing” and drive business away, no matter how small the increase.

But that’s not the case. When the Legislature passed a major tax package in 2003, some members of the anti-government crowd predicted dire consequences for the state. Instead, Nevada went on a torrid growth streak.

There is the persistent belief that Nevada has a bloated government and huge taxes, yet neither is correct. The government is among the smallest in the nation, as is the tax burden. In a study of state and local tax burdens from 1977 to 2008, the Tax Foundation reported that Nevada has never ranked higher than 48th.

Several other states that don’t rank as well as Nevada have relatively low taxes, and yet they tend to have better schools and services — not to mention lower unemployment rates. Instead of making this an either-or debate about taxes, lawmakers and the governor should look for the middle ground to find ways to improve education and the economy — so Nevada has more to brag about than low taxes.