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November 24, 2015

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jon ralston:

If only there were time to debate the Democratic tax ideas

I know the Democratic tax plan has about much chance of passage as Shelley Berkley hosting a soiree to honor Byron Georgiou.

I know Democrats may have been thinking more about optics and the base (such a noble failure!) than political reality when they presented a multifaceted, farsighted way to broaden the tax base and restore $1.5 billion to the budget.

I know Republicans are in automaton mode at this point, regurgitating the programming Gov. Brian Sandoval installed or the Democrats inadvertently inserted.

And I know there is not enough time to fully vet the most dramatic, substantive restructuring of the state’s tax system in history — and we haven’t even seen the actual legislation yet.

But let’s talk about it anyhow. Allow me to deconstruct:

• Don’t let the sun go down on them: Most observers think the only component of the plan with any chance is the continuation of sales and business taxes scheduled to sunset June 30. This is seen as easier to spin because it’s not a tax increase if you continue existing taxes. I think this is actually the worst part of the plan and the easiest to criticize. First, it is a tax increase — $600 million worth — when a tax that is not supposed to exist on July 1 … exists on July 1. Second, the very taxes the Democrats want to keep alive, sales and payroll taxes, are the same ones they argue are inimical to the state’s long-term fiscal health — at least the way they are constituted now. And, third, I know one Legislature can’t bind another but: Lawmakers two years ago, by putting on the sunsets, pledged to their constituents they would raise those taxes only for two years. This would be a broken promise.

• A franchise player: The so-called margins tax, modeled after a tax of the same name that metamorphosed in Texas from a franchise tax, is accepted by many people as a much fairer way to tax business than the current system. It exempts most small businesses — the hold harmless level is proposed at $1 million in annual revenue but that clearly is negotiable. And it allows businesses to choose one of three ways to calculate the tax to reduce the burden: Deducting either the cost of goods, overall compensation or 70 percent of revenues from gross before applying a tax estimated at 1 percent. This is broad and fair. But there is one argument conservatives will raise. Even if this tax makes sense, it is the proverbial nose under the tent, and once a tax is embedded in law, politicians can lower the exemption level when they want more money. This just occurred in Texas with a proposal to change the threshold and rope in 28,000 more businesses.

• Selling the transaction: The idea to tax services makes sense to a lot of business folks — especially those who wouldn’t come under the tax, which would have a rate of 1 to 4 percent. The idea to broaden the state’s narrow sales tax base and then, eventually, lower the overall rate has been embraced by the left and the right, including the Nevada Policy Research Institute.

• Don’t modify, repeal: Getting rid of the modified business tax, which is a head tax, would ensure that in a few years, most small businesses would have a tax cut. Historical irony: The payroll tax was proposed in 2003 by business groups, including the Las Vegas Chamber of Commerce, which sold out its small members to ensure its larger companies didn’t have to pay a gross receipts tax.

The table is set for a real policy debate, but too many people won’t pull up chairs, and it’s too late to digest all the permutations and problems. So we will get what we always do: truncated discussion, frenetic arm-twisting, tortured spinning and rank pusillanimity.

So the session will either climax in an extended train wreck with Democrats holding out futile hope to garner GOP votes or there will be a White Flag Ending, with legislative leaders handing Sandoval what they hope is Pyrrhic victory as the consequences of his budget are felt in the fall and the public demands action (hello, ballot questions). Of course, the governor believes the economy will rebound enough so the state — and his political fortunes — will be fine.

Sir Walter Raleigh would have understood how sad this is: missing the chance for a historic debate on the tax structure and spending priorities. But the Democrats frittered away the time by being too clever and too arrogant, precluding any real debate, and the Republicans have decided to be rubber stamps instead of legislators, believing saying “no” is the path to electoral salvation.

Ah, what might have been.

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