Lanni proposes payroll tax hike

By Liz Benston, David McGrath Schwartz

Tuesday, June 17, 2008 | 2 a.m.

The chief executive of Nevada’s largest employer Monday proposed doubling the state’s payroll tax to help the state close its ever-growing budget deficit.

MGM Mirage Chief Executive Terry Lanni said increasing the state’s businesswide payroll tax from 0.63 percent to 1.23 percent could generate $246 million a year for the state.

Lanni proposed the increase in what’s known as the modified business tax in lieu of an alternative that is supported by the state’s teachers and a handful of gaming industry giants: that the room tax be increased by 3 percentage points to help pay for teacher salaries and other education costs.

Lanni opposes that plan, saying that earmarking revenue for specific purposes isn’t sound tax policy for a state with ever-changing needs.

He said he would rather the room tax be increased by 2 percentage points — and for the money to go to the state’s general fund, where legislators would decide how to allocate it.

Lanni also wants to divert a portion of the room tax that goes to the Las Vegas Convention and Visitors Authority to the state’s general fund.

The goal of the three moves, combined, would be to generate nearly $800 million for the general fund over two years, closing about two-thirds of the state’s deficit, according to Lanni’s projections.

The balance of the budget shortfall should be closed with cutbacks, he said.

Lanni believes increasing the payroll tax will be an easier sell than previously failed proposals to impose new taxes on the business community, and could also comply with Gov. Jim Gibbons’ “no new taxes” pledge.

“This is a much more practical approach, to take a look at existing taxes” rather than imposing additional ones, he said.

The teachers’ plan to raise room taxes by 3 percentage points would raise an estimated $162 million based on last year’s hotel rates and occupancy levels. Lanni says those assumptions are optimistic because they don’t factor in the decline in room rates and occupancy that has already occurred as a result of the economic slowdown, which will likely boost the state’s budget deficit to at least $1.2 billion.

Some analysts are now estimating that the slowdown will last at least 18 months, perhaps even longer.

The governor has cut $914 million from the budget, and that could rise to nearly $1 billion after next week’s special session, which the governor has called to address the latest budget problems.

The state’s financial strain, which historians say is the worst since the Great Depression, is expected to worsen in 2010 and 2011. For the first time in more than 20 years, the state this year collected less money than in the previous year.

The state teachers union, which has complained that critics of the room tax deal haven’t offered their own solutions, is receptive to considering alternatives.

In the current round of budget cuts, Republican and Democratic leaders have been afraid to touch the idea of raising taxes. The Greater Las Vegas Chamber of Commerce has been adamantly opposed to raising taxes. And though some gaming companies had talked vaguely of a broader business tax, until now no one had revealed a plan as detailed as Lanni’s, which he says already has support from Boyd Gaming Corp.

Harrah’s Entertainment, Wynn Resorts and Station Casinos — which support the teachers’ plan to earmark room tax for education — couldn’t be reached for comment on the tax plan. Legislative leaders also could not be reached for comment on Lanni’s proposal, but have said previously this is not the time to raise taxes.

Ben Kieckhefer, a spokesman for Gov. Jim Gibbons, said the governor “would have a hard time supporting such a proposal, given that many businesses are struggling right now.”

Carole Vilardo, president of the Nevada Taxpayers Association, said the even miniscule-sounding payroll tax raise could be absorbed by big gaming companies but be devastating for small businesses, which are already suffering most in the downturn.

“More than 70 percent of businesses in Nevada employ under 19 people. Those are the ones we see (closing up) right now. This would put more of them out of business,” she said.

Vilardo isn’t thrilled with the teachers’ room tax proposal, either.

“To make tourists pay the tax is great, but what happens when the tourists don’t come?” she said.

Las Vegas Chamber of Commerce spokeswoman Cara Roberts said her organization wasn’t prepared to react to Lanni’s suggestion.

MGM Mirage knocked heads with the Las Vegas Chamber of Commerce in 2003, when a broad coalition of gaming companies pushed for a broad-based business tax in the form of a gross receipts tax, which failed at the hands of anti-tax conservatives and lobbying by nongaming businesses. As a result, MGM Mirage resigned its membership in the Las Vegas Chamber of Commerce, which opposed the plan.

While gaming interests were aligned over the gross receipts plan, the big casino companies — which are divided on the issue of how to raise money for education — aren’t always in agreement on big-picture issues.

Some companies have butted heads over whether to support Internet gambling and even how to combat problem gambling.

Venetian owner Las Vegas Sands has created a rift with other companies by wanting to divert growth in room taxes from the Las Vegas Convention and Visitors Authority, which markets Las Vegas and operates the Las Vegas Convention Center, into the general fund. Lanni says the situation is more dire than it was during the past major tax mess, in 2003. Still recovering from the effects of 9/11, the state projected a $700 million budget deficit but ended up with a surplus in 2005 as the economy, led by tourism, flourished.

“The point is that the state needs more money,” Lanni said. “Are we going to deal with this or cover it up for the next two years until it becomes a problem again? We’ve got a gushing wound. Let’s not try to justify putting a Band-Aid on it.”

Editor's Note: This story has been modified. The original version contained inaccurate numbers for the proposed payroll tax.

Sun reporter Brian Eckhouse contributed to this report.