Tax Amnesty: A Good Move for Nevada?

Here's the latest in Nevada's never-ending search for ways of raising revenue without calling it a tax hike: a "tax amnesty." As the Reno Gazette-Journal explains, it's just what it sounds like: for a bunch of businesses who collectively owe about $69 million in back taxes, the state is prepared to waive prosecution (as well as penalties and interest) for anyone who ponies up now.

A press release from the Governor's office has more:

“Providing a temporary incentive for businesses to balance their ledger with the
state is a proven revenue generator, which is much needed during this difficult
fiscal time,” the Governor said. “All the revenue we collect during this amnesty
minimizes the effect the economic downturn will have on state services.”

So what's wrong with this idea? For starters, it's a short-sighted way of balancing the books. The overdue tax, penalties and interest is a stream of money that will hopefully be paid eventually. But by forgiving penalties and interest, the state is basically saying they need money so bad right now that they're willing to accept partial payment and forgo the remainder. This will help, on the margin, right now, but actually digs the hole deeper in future years.

In addition, from a law-and-order perspective, the state shouldn't have to provide a "temporary incentive" for these companies to pay what they're supposed to pay. Either they can afford to pay their taxes or they can't: and if they can, forgiving penalties and interest hardly seems appropriate.

It's not the dumbest idea in the world. It will certainly raise the state some cash. But it's symptomatic of a larger problem with the state's fiscal policy decision-making: the strategy these guys have chosen for getting through the ongoing fiscal crisis is "whatever it takes to balance the books this year." No thought at all to what's generating the short-term deficits; no thought at all to whether this year's fix will make things better or worse five years down the road.

Put another way, if your solution to every cash shortfall is to look for loose change under your couch cushions, that's a revenue-raising solution that is certainly not going to last you very long.