Nevada’s Tax Structure Means Revenues Tanked During The Recession

Two-Thirds Of Nevada’s Revenue Comes From Gaming And Sales Tax. From Brookings Metropolitan Policy Program senior fellow Mark Muro: “Nevada, after all, has one of the most narrow and consumption-oriented revenue structures in the nation, with nearly two-thirds of the state’s revenue flowing from gaming and sales taxes. That revenue base worked well with in-migration at super-high levels, home building on a tear, and gaming and tourism receipts rolling in.” [LVRJ.com, 2/2/11]

Decline In Tourism During The Recession Severely Impacted Nevada’s Tax Revenue. From the Las Vegas Review-Journal: “The problem is that Nevada’s economy hinges on discretionary spending and housing growth, they said. The national recession curbed visits to the state, and slumping tourism has meant double-digit declines in taxable sales for much of the last year. And with new-home sales dropping from well over 3,000 units a month at their 2005 peak to fewer than 500 homes a month now, construction employment across Nevada has plummeted to 84,400 from 125,000.” [Las Vegas Review-Journal, 11/12/09]

Horsford: Plummeting Revenues During Recession Show State Tax System Is Dysfunctional. From the Las Vegas Sun: “Horsford said the recession, in which state revenue fell 44 percent below the amount needed to fund 2007 service levels, showed the dysfunction of the state’s tax structure. The state relies on gaming and sales tax for 62 percent of its revenue, sources that he says are volatile.” [Las Vegas Sun, 6/2/09]

Pre-Recession Revenue System Unlikely To Prove Sustainable For The State. From Brookings Metropolitan Policy Program senior fellow Mark Muro: “However, with migration, real estate, and consumption likely down for years, it is extremely unlikely the old revenue system will yield sufficient revenue going forward. In short, a tax structure built to generate revenues off migration and consumption will almost certainly fall short during the coming ‘new normal’ of depressed migration and tepid consumption. So what should the state do? Basically, Nevada needs to reset its revenue structure to suit the economy it now has, rather than one it used to have. The state will need to recognize its budget deficits are likely deeper and longer lived than the present recessionary dip. The state, in short, will need to rethink its fiscal structure.” [LVRJ.com, 2/2/11]

Brookings Senior Fellow: Nevada Must Diversify Its Tax Base. From Brookings Metropolitan Policy Program senior fellow Mark Muro: “Another sort of balance should be sought: diversification of the tax system. Nevada needs to at minimum expand the base of its sales tax and most likely consider adding to the revenue mix some sort of business ac­tivity tax, such as the commercial activities tax in Ohio or the ‘margins’ tax in Texas, since these gross receipts taxes may not run afoul of the state’s constitution.” [LVRJ.com, 2/2/11]

$781 Million Tax Increase Was A Bipartisan Compromise That Propped Up Nevada’s Education

Both Democrats And Republicans In Nevada’s State Senate Compromised To Pass Tax Increase. From the Las Vegas Review-Journal: “Wielding his bright-red ‘VETO’ stamp in a public ceremony on the steps of the state Capitol, Gov. Jim Gibbons on Thursday rejected the $781 million tax increase and $6.8 billion in spending approved by the Legislature. His action was destined to be short-lived. Hours later, the Senate undid three of the vetoes, with more veto overrides in the Senate and Assembly expected today. Senators overrode the veto on the tax hike bill by the same 17-4 vote that originally approved the package, with five Republicans joining the 12 Democrats in favor and four Republicans against. […] Legislators Thursday evening moved quickly to pass the public employee pension reforms on which Senate Republicans had conditioned their tax votes. That bill, Senate Bill 427, was approved 19-2 in the Senate and unanimously in the Assembly. The tax bill, Senate Bill 429, contains increases in sales, vehicle, business license and payroll taxes, most of which will expire in 2011.” [Las Vegas Review Journal, 5/29/09]

Tax Increases Needed To Close State Budget Gap. From the Las Vegas Review-Journal: “The tax increases were needed to bridge the gap between projected revenues for the next biennium and the $6.8 billion in spending legislators have approved. (This approved spending is more than the governor’s proposed budget of $6.3 billion, more than actual spending in the current biennium of about $6.3 billion, and about the same as the budget approved by lawmakers two years ago. It is less than the estimated $8.1 billion it would take to maintain current service levels.)” [Las Vegas Review Journal, 5/23/09]

Tax Increase Was Coupled With Spending Cuts, And Was Needed To Preserve State Education. From the Las Vegas Review-Journal: “In a statement, Senate Majority Leader Steven Horsford, D-Las Vegas, said lawmakers made difficult decisions, including more than $1 billion in cuts to state services. ‘We asked all Nevadans to bear the responsibility of carrying the state through this difficult time,’ Horsford said. ‘This legislation is a bipartisan agreement that will provide the state with the revenue necessary to protect education until Nevada regains its economic strength,’ he added. […] Sen. Warren Hardy, R-Las Vegas, one of the GOP senators who voted for the tax package and override, said in an interview that he could not stomach further cuts, especially those Gibbons proposed to higher education. ‘We did the best we could under difficult circumstances,’ Hardy said of the budget. ‘I agree that raising taxes is not the best thing for business right now, but neither is closing one of our universities. I would have given anything not to raise taxes, but we could not allow these massive, Draconian cuts.’” [Las Vegas Review Journal, 5/29/09]

Horsford Suggested $1.5 Billion In New Revenue Coupled With $1.5 Billion In Cuts To Address Structural Tax Problems

Horsford Proposed $1.5 Billion In Spending Reductions Plus $1.5 Billion In Tax Revenue. From the Las Vegas Sun: “State Sen. Steven Horsford has broken the unofficial moratorium on frank talk about Nevada’s finances, acknowledging that additional ‘revenue’ — read: taxes — along with spending cuts will be needed to balance the state budget in 2011. ‘There has to be some combination of spending reductions and revenue to balance the budget,’ he said. ‘It should be almost a dollar-for-dollar equation.’ With the state facing an estimated $3 billion shortfall, Horsford, D-Las Vegas, proposed in an interview with the Las Vegas Sun that the state should cut programs or shift them along with their costs to local governments. These spending reductions would total about $1.5 billion. An equal amount would be needed in taxes, he said. ‘We’ll need that much more in revenue.’” [Las Vegas Sun, 8/3/10]

Solving Budget Deficits Entirely With Cuts Would Mean Unacceptable Cuts To Public Services. From the Las Vegas Sun: “The general lack of candor, though, has frustrated insiders of both parties. A tax package of some amount is inevitable, they say, because it will be impossible to cut $3 billion from the state’s two-year, $6.8 billion budget. The cuts at that level — tens of thousands of children dropped from health care programs, drug rationing for the elderly and mentally ill, deep cuts to schools and prisons — would both be politically unpalatable and expose the state to federal lawsuits for failing to provide services.” [Las Vegas Sun, 8/3/10]

In May 2011, Nevada Democrats Proposed $1.5 Billion In Revenue To Mitigate Education And Social Services Cuts And Shore Up State Finances. From the Associated Press: “Democratic legislative leaders on Thursday rolled out a tax proposal they said is needed to avoid deep cuts to education and social services and would put Nevada’s tax structure on more solid footing for the future. The proposal would extend taxes approved by the 2009 Legislature that are scheduled to sunset June 30, and extend the sales tax to include some consumer services. The plan would phase out the state’s modified business tax based on payroll in favor of a so-called margin tax, a concept that backers said has been adopted in Texas. Exempting the first $1 million in revenue, the 1 percent tax rate would then be based on 70 percent of total revenue; total revenue minus wages and salaries paid; or total revenue minus the cost of goods sold. The tax would apply to whichever option is less. Assembly Speaker John Oceguera, D-Las Vegas, and state Senate Majority Leader Steven Horsford, D-Las Vegas, pitched their plan to about 130 business and community leaders at Western Nevada College. Combined, Democratic leaders said the package would bring in about $1.5 billion to soften the budget blow to education and social services in Republican Gov. Brian Sandoval’s $6 billion budget proposal.” [Associated Press via RGJ.com, 5/5/11]