Gibbons: Read My Lips, Again

Delicate negotiations over Nevada's budget for the next fiscal year are at a standstill over a tax increase of 0.01 percent:

Gov. Jim Gibbons insists on keeping the state business tax at 0.63 percent rather than letting it rise to 0.65 percent, as it would automatically under current law.
Lawmakers on both sides of the aisle had reached a compromise on the budget that included allowing the tax rate to rise to 0.64 percent for one year, but Gibbons rejected it, Senate Minority Leader Dina Titus, D-Las Vegas, said late Monday.

On one level, the most obvious reaction to this result is "duh." Gibbons has been nothing if not consistent on this point: he doesn't think tax increases of any kind are permissible. So an increase in the payroll tax from 0.63 to 0.64 is just as impossible as, say, introducing a broad-based personal income tax. But this standoff does illustrate just how fundamentally silly the "pledge" approach to fiscal policy is. At the end of the day, what makes a good lawmaker is the ability to evaluate policy choices honestly, one by one. Implicit in Gibbons' unwillingness to accept this tiny tax hike is that once you allow this, the flood gates will open and Nevada will turn into, well, California in terms of tax climate. His oh-so-strict adherence to a simple rule-- no tax increases of any kind-- turns a policy molehill into a mountain and strands budget negotiations over the tiniest tax hike imaginable.

Lawmakers don't always live up to our trust in them, to be sure. But that just means they're about as reliable as any other humans we interact with from day to day. We wouldn't reward our loved ones or co-workers for refusing to rationally consider the choices they face every day-- so why would anyone consider the "no tax pledge" something to be admired, emulated, or rewarded?

Progressive Property Tax Proposal Advances

The Las Vegas Sun reports that Nevada lawmakers are considering a bill that would expand the state's property tax credit for low-income seniors. The bill, SB 179, was introduced by Sen. Dina Titus. Under current law, seniors with incomes under $26,000 or so (an amount that is indexed annually for inflation) can get a property tax credit of up to $500. Titus' bill would double the maximum credit to $1,000.

Growing uncertainty over the state's fiscal health is prompting Nevada lawmakers to question a variety of tax breaks that are currently being doled out. But most Nevadans would presumably agree that if property tax cuts are necessary and affordable, then low-income seniors should be first in line. And that's exactly who would benefit from passing SB 179.

No Transportation Funding Solution for Nevada This Year?

Lawmakers are forecasting that Nevada's yawning transportation funding shortfall will not get fixed this year. There are two "plans" out there for raising some money to close the state's multi-billion-dollar funding hole: Governor Jim Gibbon's plan to shift existing tax revenues from other areas to fund transportation, and a Democratic plan that would hike diesel taxes and vehicle registration fees. Gibbons has made it clear that his "no new taxes" pledge prevents him from signing on to the Democratic bill. And the governor's own plan arguably amounts to a shell game, since it would deprive other public investments of revenue they currently are using.

Taking the "no new taxes" pledge is usually politically pretty easy-- but anti-tax attitudes sometimes run into harsh reality. And there are some indications that Gov. Gibbons is on the verge of finding out that support for this position can evaporate pretty fast when new taxes are clearly necessary.

Gibbons Plan: Use Room Tax Revenues for Road Funding

A front-page article in today's New York Times fills in national readers on the recent travails of Nevada Governor Jim Gibbons. But members of the Las Vegas Convention and Visitors Authority clearly don't need the Times' help in making up their mind about Gibbons. Here's the lede in last week's Review-Journal:

Gov. Jim Gibbons' proposal to use room tax dollars to build highways was called "rude," "irresponsible," "ill- conceived" and "a blatant lie" by Las Vegas Convention and Visitors Authority board members Friday.

Wow. So what did Gibbons propose that generated so much spleen from the Visitors Authority folks?

Gibbons proposes redirecting $424 million in revenue from the tax on hotel rooms from the authority to highway construction over the next eight years, an amount that would be combined with diversions of live entertainment tax and vehicle sales tax to secure $2.5 billion in bonds and get started on the state's most urgent road construction needs, which have an estimated cost of $5 billion.

From the board members' perspective, the main problem with this proposal is that the revenue from the hotel-room tax already is being used to help pay for bonds to build a new convention center-- which means that diverting the revenue could endanger the bonds (and the whole convention center project):

Because bonds have already been sold to pay for the renovation, secured by projected future revenue, the authority's lawyers say Gibbons' proposal violates contract provisions in the U.S. and state constitutions.
"The U.S. and Nevada constitution both have clauses that prevent the government or the state Legislature from changing the deal on bondholders," attorney John Swendseid told the board.

Apart from nit-picky questions of violating the US and state constitutions, the real issue here is that Gibbons simply will not tolerate tax increases of any kind. And when tax increases are verboten, the only other way to meet unmet spending needs is to beg, borrow or steal money from somewhere else. One wonders how much more outlandish these proposals will have to get before Nevada policymakers realize the folly of the "no tax pledge."

Green Tax Breaks Have Lawmakers Seeing Red

It's not always easy to know how expensive a tax break is going to be. This is especially true when the tax break in question is designed to change people's economic behavior. Case in point: a tax cut enacted in 2005 by the Nevada legislature that gives up to a 50 percent property tax abatement, for up to 10 years, for companies that abide by certain "green" energy conservation standards in buildings they own. The bill also granted sales tax breaks for green construction materials. When the bill was passed, its sponsor estimated the annual cost at about $250,000. But the (admittedly gloomy) conventional wisdom today is that the cost can be measured in the hundreds of millions-- which is why Nevada lawmakers are acting fast to scale back the tax break.

Since the property tax in Nevada is a local tax, it's primarily local governments who are seeing their property tax base disappear as a result of the state's green tax breaks. But when locals are unable to adequately fund education using their local tax base, the state must step in to help achieve adequacy. So the projected overruns in the cost of the green breaks are threatening to come back to haunt the state.

For anyone who was paying attention back then, this sounds eerily like Arizona's alternative fuels tax credit fiasco back in 2000, where a tax credit designed to cost about $10 million rapidly ballooned to $200 million before lawmakers pulled the plug. Of course, in Arizona the beneficiaries were individual taxpayers, while the Nevada cuts are limited to businesses.

The lesson in both cases is that tax breaks designed to encourage behavioral changes can be too successful-- and at the same time, not successful at all. For sure, the Nevada break encouraged some companies to go green in their building management practices-- but some others were likely going to do it anyway. And others are likely just going through the motions, acting just as green as they need to in order to satisfy the terms of the tax break.

This isn't to say that using tax policy to achieve environmental policy ends is entirely wrong-headed-- these guys, whose goals are quite noble, think it's terrific-- but the Nevada experience makes it clear that the success of these green tax efforts can be hard to quantify.