On the brain but not the lips: State tax hikes

By David McGrath Schwartz

Wednesday, Feb. 25, 2009 | 2 a.m.

It’s hard to get anyone in the Legislature to say the word “taxes,” much less admit that raising them is going to be part of the solution to the state’s $2.36 billion budget hole.

Behind the scenes, however, some legislators, Democrats and Republicans in both houses, are quietly circulating a menu of tax increases.

The list, prepared by Legislative Counsel Bureau staff some months ago, is not a series of recommendations or plans. Rather it offers estimates of how much revenue the state would collect if certain taxes were raised.

The matter is sensitive because Democrats, in particular, have resisted acknowledging the inevitable — a tax proposal that will give Republican partisans a tempting target.

Assembly Speaker Barbara Buckley, D-Las Vegas, said she hadn’t seen the list.

“We have not yet had any revenue discussions,” Buckley said. “We have not determined what programs can be cut, what programs cannot be cut.”

The numbers in the spreadsheet were prepared based on Economic Forum estimates in December. Fiscal staff warned that the economy has continued to decline and any tax increases would likely yield less revenue than estimated.

Still, the list illustrates the cause-and-effect realities that lawmakers face as they balance the budget.

• Every 0.25 point increase in the sales tax would generate about $216 million in fiscal years 2010 and 2011.

• Raising the top rate of the gaming tax by a quarter-point would yield $52 million.

• Boosting the cigarette tax by 55 cents per pack, to $1, would raise $145 million to $251 million.

• Increasing the modified business tax, assessed on businesses based on payroll, would generate $81 million over two years for every 0.10 point it is raised. (It is currently at .63 percent of taxable wages.)

Assemblywoman Kathy McClain, chairwoman of the Assembly Taxation Committee, was quick to emphasize that the document is not part of any plan. No plan has been formulated, she said.

During a meeting of her committee Tuesday, she said that on March 5, she will hold a “marathon hearing” to ask businesses, chambers of commerce, advocacy groups and the public to present ideas to solve the state budget crisis.

“We will want everyone to weigh in and say what you’re willing to do to help us fix” the budget, McClain said. “We’re going to hear a lot of testimony from a lot of people, and hold their feet to the fire.”

To maintain services at levels approved by the Legislature in 2007, the state would need to come up with $2.36 billion, according to the numbers from Gov. Jim Gibbons’ budget director.

To balance the budget, the governor proposes the state cut spending, though his spending plan does include a room tax increase, which passed the Assembly on Tuesday.

Democrats and Republicans have both largely rejected Gibbons’ budget. But neither side has wanted to talk about taxes openly.

Assembly and Senate Democrats, led by Buckley and state Sen. Steven Horsford, D-Las Vegas, have followed a disciplined process to rework Gibbons’ budget. And despite some grumblings about the lack of a Democratic plan, it has worked.

The Democrats hope criticism of Gibbons’ budget during legislative hearings will build to a crescendo in late March. That would be followed by hearings on taxes in April and the presentation and passage of a tax plan.

They appear to be heeding a lesson learned by then-Gov. Kenny Guinn, who in 2003 unveiled a tax plan early in the legislative session only to see forces organize against it. The real changes in the tax system sought by Guinn failed, though he did eventually get a large tax increase passed.

“A tax plan released too early is destined for failure,” said Pete Ernaut, a Republican lobbyist who served under Guinn.

That’s not to say all possible elements of a future tax plan are included in the spreadsheet circulating among lawmakers.

Mike Hillerby, another lobbyist and Guinn administration veteran, noted that the state has often considered a tax on services, from lawyers to hairdressers.

“From a policy perspective, you could argue a sales tax on services makes a lot of sense right now,” he said. “The politics of it are deadly. How are you going to craft a new tax that gores everybody’s ox? It’s almost impossible in this political climate.”

Sen. Randolph Townsend, R-Reno, said it was up to Democrats, because they control both houses of the Legislature, to present a revenue plan.

“They won the election. They’re in charge. They don’t like the governor’s budget. It’s their job to present something different,” he said. “I don’t know how long we’re going to be able to wait.”