Attraction to this tax is totally gross - Opinion

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Jan. 15, 2008
Copyright © Las Vegas Review-Journal

Attraction to this tax is totally gross

By STEVEN MILLER
SPECIAL TO THE REVIEW-JOURNAL

The Nevada special interests that regularly call for a "broad-based business tax" always couch their advocacy in the language of good public policy.

It's interesting, therefore, that the particular tax they've worked hardest for -- a statewide gross receipts tax -- is actually one of the worst public policy choices conceivable, according to nonpartisan public finance experts.

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This raises an interesting question. If we assume that Nevada's fans of the GRT, as it is called, actually know something about this tax, why does it so attract them? Some new white papers from the nonpartisan Tax Foundation in Washington, D.C., may hold the answers.

The nationally esteemed John Mikesell, professor of public finance and policy analysis at Indiana University, is one author. After recounting the history of gross receipts taxes from the 13th century to the present, Mikesell draws a devastating conclusion.

"No sensible case can be made for imposing gross receipts taxes in the modern economic environment," he writes. "Gross receipts taxes should never be seen as an element of positive tax reform. They were abandoned for good reason."

Andrew Chamberlain and Patrick Fleenor, economists at the Tax Foundation, highlight the GRT's basic problem.

"While well-designed sales taxes apply only to final sales to consumers," they explain, "gross receipts taxes tax all transactions, including intermediate business-to-business purchases of supplies, raw materials and equipment.

As a result, gross receipts taxes create an extra layer of taxation at each stage of production that sales and other taxes do not-- something economists call 'tax pyramiding.' "

As a result, note the economists, "gross receipts taxes suffer from severe flaws that are well-documented in the economic literature, and rank among the most economically harmful tax structures available to lawmakers."

Atop the list of ways that the GRT harms the jurisdictions that adopt it is the tax's lack of transparency. Just like consumers need information about prices to make good buying decisions in the marketplace, Chamberlain and Fleenor explain, taxpayers need good information about the "price" of government programs in order to make good choices about the level of spending they demand from elected officials.

However, GRTs completely violate this principle. At each level of production, the tax's economic burden gets folded into the price of the product or service at the next level. This pyramiding continues all the way through the production process until, at the final retail level, the consumer who contemplates purchasing a business product or service has no way of knowing how much of the final price is actually hidden taxes.

"Imposing nontransparent taxes that disguise the true cost of spending programs may be politically advantageous to lawmakers," note economists Chamberlain and Fleenor, "but in a democratic society that requires informed citizens, it is poor tax policy."

Mikesell makes a similar point: "A gross receipts tax is a stealth tax with its true burden hidden from taxpayers.... Hiding the cost of government is inconsistent with efficient and responsive provision of government services and contrary to the fundamentals of democratic government."

Thus, a gross receipts tax is an optimal way of empowering predatory politicians and other interests that feed off of taxpayers, because it puts a fog around taxpayers.

In Nevada, of course, stealth taxation is an old story. As a forthcoming Nevada Policy Research Institute study will show, for more than a generation this has been the M.O. of the state's politically dominant special-interest coalition.

However, recently that coalition's enabling alliance -- the strange cohabitation of the old-line Strip megacasinos and state teachers union bosses -- has hit the skids. Voracious for more boodle from taxpayers than the pact's current schedule of predation produces, teachers union operatives recently turned on their old allies, targeting them and other gamers, too, for a savage 44 percent tax hike.

In this context, the loud, continuing support by the Nevada Resort Association and high-profile executives of the MGM Mirage empire for a "broad-based business tax" -- read, gross receipts tax -- becomes more intelligible. It is a plaintive, coded cry to the teachers union: "Please come back. We can do it all again."

To the larger Nevada business community, however, it resembles nothing so much as an expression of clueless imperiousness.

"Please help us re-establish the old status quo," it says. "You know, the situation where -- Legislature after Legislature -- we get to rule the roost, but you regularly get sold down the river."

Steven Miller is policy director at the Nevada Policy Research Institute.

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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. dennis1944 wrote on January 15, 2008 02:12 PM: I’ve said it before and I’ll say it again but no one seems to have a valid rebuttal for this this! TAX THE BUSINESSES! Sounds good but if you own a business and your taxes increase, you will raise the prices of your products and/or services! This simply passes it on down to the consumer. I just love politicians and mentally challenged liberals who spout this kind of nonsense. I always ask the question; “Where were you and what were you doing when you should have been in your Economics 101 class?” (hope you didn’t inhale) "What we learn from history, is that we learn nothing from history". TAX THE RICH! Sounds good but just once I would love to get a straight answer from a liberal (mostly "democratic") politician. That question is; Define "RICH". Never have been able to get a straight answer. These politicians are going to solve all of everyones problems with "your money". They never seem to have enough, so they simply reach into our collective pockets and steal some more to throw at anything they perceive as a problem. I think I have figured out why they won't define what "rich" is. It simply means you are not on welfare, unemployment or some other government dole program. That is an awful truth. Wake up folks. Every government of any worth has historically been destroyed by fiscal irreponsibility. douglas wrote on January 15, 2008 10:58 AM: all taxes are regressive. worse, they ultimately are carried by those citizens who erroneously think that they've designed some method to get some other individual or commercial enterprise to pay them. if the issue continues to spin back to the nevada education budget, the solution remains. only after the state authorities quickly rid the classrooms of illegal infiltrators' children can the revenue match the expenditures. since the state and various gubmit authorities refuse to provide services only to deserving [read, taxpraying] citizens' children, all budgets will be "short". the state and the educational system authorities lose all credibility when they permit massive inundation by non deserving recipients. same as a motorist loses any credibility complaining about the cost of gasoline while they've refused to repair the leak in their car's gas tank. should the neighbors buy extra gasoline for the fellow who refuses to plug the hole in his gas tank ? TimeRanger wrote on January 15, 2008 10:39 AM: Want to see what a GRT can do to an economy? Take a look at Michigan. Jon H. wrote on January 15, 2008 10:26 AM: BR Gross receipts taxes also benefit large business's that are vertically integrated. Big business's are shielded from paying taxes that the less vertically integrated businesses must pay. Thus, big business will tend to support this tax as it puts an additional burden on their smaller competition. BR wrote on January 15, 2008 09:46 AM: Gross receipts taxes are gross. You can read that both ways. Since it is part of the cost of doing business it must must be factored into pricing of the goods or services involved. That puts another layer of tax at every step of the creation until it gets to the consumer. Then comes the final insult, sales tax. Don't tell me there is a provision in the law that says business can't pass along gross tax. There are just too many ways to hide that amount in pricing things. Jon H. wrote on January 15, 2008 08:52 AM: Lawrence Hyde wrote: "What is wrong with a state lottery. From what I understand lotteries bring in a large amount of money to the states that have them, and the only people are involved are the ones who want to be." The first part of the problem is, that Government is not held accountable for spending. With a Lotto, the revenue stream will find it's way into a Government black hole to be spent and never seen again. And once this new Government spending datum is established it will be near impossible to eliminate. The second problem, is that we do have problem gamblers . . . and I do hope that we do not institutionalize their vice. Lawrence Hyde wrote on January 15, 2008 08:34 AM: What is wrong with a state lottery. From what I understand lotteries bring in a large amount of money to the states that have them, and the only people are involved are the ones who want to be. Oh yes I forgot a lottery will never happen in this state because the gaming industry owns the politicians in the state and the gaming industry does not want a lottery. helen weils wrote on January 15, 2008 07:07 AM: PUT THAT IN YOUR PIPE AND SMOKE IT OSCAR AND TERRI LANNI, TAX AND SPENDERS, ET ALL!!! THE GROSS RECEIPTS TAX IS THE INVENTION OF THE CASINOS. SOCK IT TO EM!!!