Reno: Local Sales Tax Hikes on the Agenda

Reno city government faces a cash crunch, and elected officials are talking about making another push to increase the city sales tax rate by up to a quarter of a cent. (A quarter cent would push Reno's sales tax rate to 7.625 percent.)

The goal is worthy: city officials want "to hire more police officers and build three new police stations in Reno." But the means is troublesome. Nevada sales and excise taxes are already among the highest in the nation, even though Nevada taxes aren't especially high overall. And there are rumblings that the way in which local sales taxes are allocated between cities and counties isn't all that fair:

Cashell said legislators he declined to name were amenable to changing the complex sales tax formula for distributing revenues in Washoe County to give the cities a bigger share...Cashell said businesses outside the two cities generate only 4 to 5 percent of the sales tax yet the county keeps 60 percent of the local government share.

And, of course, the sales tax proposal would make things even worse from a tax fairness perspective. Adequate funding for police protection is pretty fundamental, but so is the goal of not taxing poor families further into poverty. And there's no quicker way to do the latter than further sales tax increases.

Gibbons Transportation Plan: "Pretty Doggone Close?"

When you're a newly elected governor hemmed in by a no-new-taxes pledge, you'll try just about anything to meet funding needs without violating your ill-conceived promise. Thus Nevada Governor Jim Gibbons, who won't stand for a gas tax hike to close the state's $3.8 billion transportation funding shortfall, but has said he think the state can get "pretty doggone close" to closing this shortfall by.... selling off water rights beneath Nevada state highways.

In a national context, this is an unremarkable assertion-- more of the same "selling the house in order to buy the groceries" schemes anti-tax leaders are using to get through the current fiscal year without breaking their promises. But as it turns out, this idea would fill only the tiniest fraction of the $3.8 billion hole: about $120 million at today's prices.

Looking for loose change under the cushions of your couch can be a productive thing to do-- but it's no substitute for long-term planning. And as Governor Gibbons is finding out, sometimes it's not enough even in the short run.

Transportation Funding Shortfall: $3.8 Billion

Incoming Nevada Governor Jim Gibbons has made it clear that he's not interesting in raising taxes-- but the Associated Press reports (sorry, no link) that new estimates from state transportation officials are prompting tough questions about whether this is a tenable stance:

Nevada transportation officials presented state lawmakers with a list of road-building projects they want to start by 2015 but added Thursday that they're are $3.8 billion short of the funds needed for the work.

Gibbons won't accept a gas tax hike to close this funding gap, and his current budget proposal would even reduce funding for transportation needs:

The Nevada Department of Transportation, which gets no money from the state's general fund, made a budget request to spend $1.4 billion in gas taxes, fees and federal funds over the next two years, a nearly 4 percent reduction from its
current budget.

The question of the year may be whether Gibbons' alternative ideas for funding transportation-- primarily, engaging in public-private partnerships-- will be a workable and politically acceptable means of shoring up the state's transportation infrastructure. Stay tuned...

Congressional Brinksmanship Makes Life More Complicated for Nevadans

As a result of last-minute bargaining by Congressional tax writers, Nevadans who itemize their federal income taxes will get another chance to write off their sales taxes this year. A temporary deduction, which originally was in effect only for 2004 and 2005, now will apply to 2006 tax year as well. This tax break is designed for states, like Nevada, that don't levy a personal income tax.

But the difficulty is that Congress took a bit too long to agree on this special tax break. Turns out the IRS has (sensibly) already finalized its tax forms for year, and now needs to revamp its online forms to make it easier for Nevadans to claim the tax break. So IRS officials are encouraging those seeking to claim the credit to wait until February 3 to file.

We've written elsewhere about how silly it is for Congress to keep extending these "temporary" tax breaks, year after year, at the last minute in a way that makes it hard for taxpayers to know what's happening. But it's worth reiterating that even as Congress continues to underfund the IRS' enforcement capabilities, it's throwing a late-breaking curve ball to tax administrators just as the ink is drying on this year's tax forms. Political brinkmanship has costs-- and in the tax world, those costs manifest themselves in more-complicated tax forms and higher costs of administration.

Testing Gibbons' No-New-Tax Pledge

Nevada families have only just embarked on a great (or possibly horrendous) experiment: life under a "no new taxes" governor. Incoming Governor Jim Gibbons has made it clear he won't accept tax hikes. But already Gibbons faces a challenge:

Senate Majority Leader Bill Raggio, R-Reno, is carrying a bill in 2007 to allow Washoe County to impose the same real estate transfer tax for schools as in Clark County.Smaller counties were given other taxes to build schools, leaving Washoe as the only school district in the state without any extra tax help, Superintendent Paul Dugan said.

Critics of the "no new tax" pledge (including yours truly) frequently point out that the pledge is a triumph of politics over policy: it's not about what's right from a policy perspective, it's about what you think sells with voters. When your stance is "no tax hikes of any kind," that gives you no latitude at all to deal with tax inequities such as the regional unfairness Senator Raggio's plan would fix. Good policymakers start with all their options on the table. Leaving fully half of the fiscal policy options in the closet will make it substantially harder for Gibbons and the state legislature to enacted needed tax reforms in 2007 and 2008.