Report: Nevada’s tax system hits poor the hardest

By Cy Ryan

Wednesday, Nov. 18, 2009 | 3:48 p.m.

CARSON CITY – Nevada’s tax system hits hardest at low and middle-income wage earners and gives the rich a break, according to a new tax study.

Nevada’s tax system is the nation’s eighth most regressive, the Institute on Taxation and Economic Policy said in the study released today.

Matthew Gardner, author of the study, said the “lack of a progressive income tax to offset regressive sales and excise taxes, as well as property taxes, is the most important factor in making the Nevada tax system so regressive.”

Gardner, executive director of the Washington D.C.-based institute, said “taxes ought to be based on people’s ability to pay them, which means that the share of income paid in tax should rise as income grows, not fall sharply as is in the case in Nevada.”

Sen. Bob Coffin, D-Las Vegas and chairman of the Senate Taxation Committee, said this is the same conclusion that every prior tax study in Nevada has reached. “They are not breaking any new ground.”

Gardner suggested that a personal income tax could be enacted and could result in a reduction in the sales and use tax. But Launce Rake of the Progressive Leadership Alliance said Nevada has to deliver its services and it would be premature to talk about a tax swap.

Nevadans spoke loudly in 1988 and 1990 against a personal income tax. They voted into the state Constitution a ban on a personal income tax.

The vote in 1988 was 276,976 for the income tax prohibition and 59,803 against. In 1990, voters approved the constitutional amendment 226,079 to 86,335. A constitutional amendment has to be passed twice by the voters to gain final passage.

The 2009 Legislature is starting a study to look at broad-based taxes that are fair and equitable and that will be considered by the 2011 session.

Because of the state’s poor financial condition, the last Legislature raised the sales and use tax by 0.35 percent, raising the rate to a minimum 6.85 percent for this biennium, according to the Legislative Counsel Bureau.

The Legislature also increased the hotel room tax in Clark and Washoe counties and the business license fee was raised statewide $100 to $200.

It lowered the depreciation rate for motor vehicles thereby increasing the tax paid for registering cars and trucks and it boosted the tax on short-term car rentals from 6 to 10 percent.

Bob Fulkerson, executive director of the Progressive Leadership Alliance of Nevada, says the study by the institute shows Nevada’s tax structure “soaks the worker and coddles the wealthy.” He said the multi-millionaires or multi-national corporations, such as big-box discounters and gold mining companies pay less in taxes and ship their profits out of state.”

The progressive leadership alliance has strongly pushed for improving services to the poor and lower income citizens in Nevada.

The study says that those who make less than $21,000 a year pay 8.9 percent of their income in state and local taxes in such levies as sales, gas, cigarettes, alcohol and property taxes. Compared to those who earn $574,000 or more, the tax burden is 1.6 percent of their income.

Middle income earners in the $34,000 to $53,000 category shell out 6.4 percent of their income in taxes.

Nationally, Gardner said poorer families pay 10.9 percent of their income in state and local taxes compared to 5.2 percent for the rich. And Middle income earners shell out 9.4 percent of their income in the state and local taxes.

Gardner said Nevada has generally lower taxes than other states. He suggested the Legislature “not dig the hole any deeper” by imposing the taxes that hit hardest at the low and middle income person. And then consider a personal income tax.

The study says the state of Washington has the most regressive tax structure with the poor paying 17.3 percent of their income in state and local taxes. And the top earners pay only 2.9 percent of their income in taxes.

Other regressive states, according to the institute, are Florida, South Dakota, Tennessee, Texas, Illinois, Arizona and then Nevada.

The study says the least regressive states have progressive income taxes and rely less on sales and excise taxes. “Vermont’s tax system is among the least regressive in the nation because it has a highly progressive income tax and low sales and excise taxes,” according to the study.

Others in this category are Delaware, New York and Delaware and the District of Columbia.