Nevada's tax rates propel state to high rank in economic outlook report - Business

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Aug. 14, 2009
Copyright © Las Vegas Review-Journal

Nevada's tax rates propel state to high rank in economic outlook report

By JENNIFER ROBISON
LAS VEGAS REVIEW-JOURNAL

Best economic outlook
1. Utah
2. Colorado
3. Arizona
4. Virginia
5. South Dakota
6. Wyoming
7. Nevada
8. Georgia
9. Tennessee
10. Texas

Worst economic outlook
1. New York
2. Vermont
3. Rhode Island
4. Maine
5. New Jersey
6. Ohio
7. Illinois
8. California
9. Pennsylvania
10. Hawaii

A new report places Nevada among the 10 states with the best economic outlook, but it's not CityCenter, renewable energy or a housing rebound that'll set the stage for future prosperity.

Rather, it's the tax rates and pro-business regulatory regime.

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That's the analysis from the American Legislative Exchange Council, a Washington, D.C., think tank that provides state lawmakers with guidelines on free-market policies.

Here's the council's thinking: Nevada has no personal or corporate income taxes, no estate tax and the fewest public employees per 10,000 residents. Its property taxes rank as the nation's 16th lowest, and as a right-to-work state, Nevada doesn't have any mandates requiring work force unionization. Those factors made Nevada one of the country's fastest growers from 1997 to 2007, and when the recession ends, those attributes will once again help the Silver State surge.

Some local observers disagree, contending that Nevada posted big gains in income and population because it's in the Sun Belt. Plus, as long the state's economy and tax base lean so heavily on gaming and retail sales, tomorrow will bring dimmer economic prospects, they add.

"The thing we have lacked is economic diversification," said Launce Rake, a spokesman for the Progressive Leadership Alliance of Nevada, an advocacy group that supports additional spending on education and other public services. "If indeed the no-income-tax issue was key to economic success, then we would have more diversification. We are really still depending on one industry. If we're going to truly diversify and build a 21st century economy our kids can be proud of, then we need to do a better job of diversifying our tax base."

And Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, said most businesses look at qualities besides taxes when they consider moving. All factors being equal, most entrepreneurs would go for the lower taxes, Schwer said, but a state's education system, availability of capital, proximity to important markets and even access to government officials can all mean more than levies do.

Still, Jonathan Williams, director of tax and fiscal policy for the American Legislative Exchange Council, said the evidence is undeniable.

Compare the nine states with no income taxes to the nine states with the highest income taxes, and there's no contest for growth. Nevada and its eight no-tax compadres handily outpaced California and its high-tax cohorts in income and population growth from 1997 to 2007. Gross state product in the no-tax states grew 82.4 percent, compared with 62.4 percent growth in heavily taxed states. Personal income grew 84.1 percent and 63.8 percent respectively, and population increased 15.6 percent and 6.3 percent respectively.

Nevada in particular experienced big gains, ranking No. 6 in the nation for absolute domestic migration (481,534 people) and No. 1 for cumulative nonfarm payroll employment growth (45 percent).

Williams acknowledged that Nevada makes up for its lack of income tax in other relatively high levies; the state placed No. 50 for its tax burden outside income taxes, property taxes and sales taxes.

Time and again, though, the council finds that income taxes are more important to entrepreneurs than any other kind of fee or levy.

"Capital today is more mobile than ever, and as we're seeing very clearly in states like California, capital will flee jurisdictions with high income taxes," Williams said.

Keeping the state's taxes low will be key to the state's future success, Williams said. But that won't be easy given the widening gap between revenue and expenditures. Just one month into the new fiscal year, July collections of gaming taxes, which fund 27 percent of state spending, already trailed budget forecasts by $10 million. Budget projections call for a 3.4 percent increase in gaming revenue in fiscal 2010. Nevada's small tax structure can no longer serve the public's needs, Rake said.

The council's study shows that, contrary to "the fluff of the fluff machine from the right-wing spinners," tax burdens and public-employee counts are already low, Rake said. That means the state has contingents who could pay more, and it could afford to add services. Rake's group wants a broad-based tax that "puts the onus on those benefiting most from what economic success we have." A corporate income tax would include national discount retailers, and mining companies must pony up as well with a levy on profits, he said.

"We need to get away from these silly Rube Goldberg ways of taxing payrolls and that kind of stuff. Let's just look at big earners and make sure everyone from banks to mining pays their fair share," Rake said.

Big taxes on big business haven't worked for California, though, Williams said. The Golden State has the nation's highest income and sales taxes -- and also the biggest deficit.

"Nevada doesn't have a problem because it doesn't tax enough," Williams said. "It has a problem because it spent more than the tax revenue that came in. When the private sector doesn't have cash flow, it doesn't ask for more money like legislators can with taxpayers. It cuts expenses first. Legislators can't expect taxpayers to pay the bill every time the government overspends in good years."

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. bdm wrote on August 14, 2009 07:13 PM: I have seen this formula before... Its called a flag of convenience! Like when they register ships in Monrovia or the Bahamas because of low taxes, no taxes, and little oversight of the "books". Trouble is, the money flows out and these places remain third world countries -- with lousy education, healthcare, infrastructure, and a poorly educated workforce. Sound familiar/? NoNV4JNV wrote on August 14, 2009 04:35 PM: If keeping taxes to a minimum requires cutting back on this state's abysmal educational system and removing police officers in a city that desperately needs more of them, then rest assured that no business will come here because no employees will want to live here. Just a fact. That's why there's not been any rush for businesses to relocate here during this downturn. I don't see those Cali businesses rushing in, do you? RonNV wrote on August 14, 2009 03:02 PM: As a CPA and business consultant I can tell you that businesses and wealthy people will relocate from tax crazy places like California to Nevada. We must keep taxes low and avoid increasing public expenditures.The California tax authority is auditing wealthy people like crazy since so many are moving to Nevada. Keep taxes low and many more will here. California's loss is our gain. Chris wrote on August 14, 2009 12:38 PM: The Vegas economy is simply transforming from a credit economy to a cash economy. It's a painful transition. But once it stablizes, probably next year, Vegas will begin a long-term steady growth. The boom days are over. But Vegas will slowly and steadily grow. Greg wrote on August 14, 2009 12:31 PM: And just how much economic diversity and jobs has this think tank created in urban Southern Nevada in the past 20 years? patrick wrote on August 14, 2009 12:28 PM: And the stupidity just keeps on rolling. If lower taxes were the way to utopia, and Nevada has one of the lowest taxed populations in the country, how can this state have one of the highest rates of unemployment in the country? Well, as any "good" republican will tell ya "its Al Gore, or, the liberals, or the myth about global warming, or terrorism, or evolution, or flag burning, or abortion, or video games, medical marijuana, or..did I mention liberals yet?" Nevada's only problem is Liberals wrote on August 14, 2009 11:30 AM: Ever since Liberals came to Nevada, the State regresses. The degenerates who destroy are those that do nothing but spend, spend, and spend. We need to run these degenerates OUT of Nevada and restore it's Conservative independent heritage, where self-reliance was a model all could live by. We did not go whinning to government for every boo-boo that came our way. We solved the problems ourselves, thank you. This foon never gets it right! wrote on August 14, 2009 11:26 AM: Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas never seems to get anything right. Dunno what kind of third rate research goes on over there on the kiddie corner at Maryland Parkway, but it never seems to answer or solve any major problems. BS! wrote on August 14, 2009 11:23 AM: "it's the tax rates and pro-business regulatory regime" The Democrats (national socialists [i.e., Nazis] that they are) have turned Nevada into an anti-business state with heavy taxes and fees on small business and non-gaming enterprises. Only gaming creates the massive problems in the valley and does not pay proportionally to fix the problems. In addition, all the ridiculous fees on every little thing. Who are the foons that write this garbage? Ken wrote on August 14, 2009 10:52 AM: This report and five bucks will get you a designer drink at Starbucks. Enjoy this nothingness. All that money we and other states took in to make it through this year is not going to be there next year. And the year after.... This means, the state has obligations to the Federal government in exchange for that cash and will need to find it through any means necessary. Expect taxes to be on the table next year. When Buckley and Horsford stand for election, remind those two of this report and how, at some point, this state was worth investing in. Now, we are California lite and it is only going to get worse. Read All Comments