Nevadans, like many taxpaying residents of the nation, must be wondering why the federal government is trying to put cash into one of their pockets while state government gets ready to take more out of the other pocket.
President George W. Bush is preparing next week to unveil his economic stimulus package, much of which involves cuts in personal income taxes and reducing taxes on stock dividends.
In a month, the Nevada Legislature will convene to consider a laundry list of tax increases to be proposed in Gov. Kenny Guinn's budget to help pull the state out of a projected $800 million shortfall.
What's going on here?
The simple answer: Federal taxes are too high, and state taxes are too low. While it's more complicated than that, there is much truth in that basic explanation.
For years, the federal government has shifted tax burdens onto state governments -- most significantly for Medicare, transportation, education and, now, homeland security.
The feds have created a potpourri of programs with grants and matching funds as the incentive, then left state governments to attempt to keep them operating without the benefit of direct revenue sources. Nearly every state in the union is struggling with the same kind of budget woes as Nevada.
When Bush originally proposed a 10-year series of tax cuts two years ago, much of the concern was over whether the federal government could afford to give money back to the taxpayers.
"Politicians and pundits seem to have forgotten that money is earned by individuals, who are taxed to pay for collective (i.e., government) goods," wrote the Cato Institute's David Boaz at the time. "Any money not essential for authentically collective purposes should stay with the people who earned it. We talk about spending money on housing, education, medical care and the like -- and that's what the people who earn it will do. The argument is over whether the money should be spent by individuals and their families or by elected officials and federal employees."
We're clearly on the side of putting that money back into the economy by putting it into the hands of the people who earned it.
Closer to home, the Nevada Policy Research Institute argues proposed tax increases will only cripple the state in the long run.
"The welfare of every Silver State family requires that we not raise taxes," NPRI says in a new analysis of the tax policies proposed by the governor's task force. "The combined burden of taxes and fees on Nevadans already requires them to bear one of the nation's highest tax loads, and adding a heavy new business tax will destroy one of the state's few remaining real economic assets -- its reputation as 'business friendly.'"
While it does seem terribly contradictory to be lowering federal taxes and raising state taxes, there is some logic in short-term results. A rising national economy would lift Nevada, where sales and gaming taxes carry the load, while the proposed state increases would spread that burden.
The challenge for the 2003 Legislature, therefore, will be to resolve the current crisis while showing some innovative leadership that produces long-term solutions -- something other than simply finding new ways to tax Nevada residents.
The goal should be nothing less than a state balance sheet which, by 2005, gives Guinn the opportunity to propose rolling back Nevada taxes. Wouldn't that be a pleasant debate to have?
