The problem isn’t the economic downturn, it’s the tax structure

It’s amazing how a little summit to “save the state” trumped the bigger economic news that has everyone from the governor to local government leaders all opining about the need to cut spending — or the reasons we shouldn’t.

A few weeks ago, Gov. Jim Gibbons asked various departments and local governments that receive state money to determine where they could make 5 percent budget reductions. At the time, the state’s projected revenue shortfall looked to be about $184 million over two years. Now, thanks to even more lackluster sales tax and real property transfer tax returns, the state may actually be looking at a $285 million shortfall.

Economic projections are not an exact science, relying on terms such as “moderate growth” or “underperforming sectors.” But when you have 50 percent fewer people buying homes in Nevada, it might qualify as a downturn — unless someone dares to mention the “R” word.

The governor considers the call for cuts in budgeted spending increases prudent to ensure the state lives within its means. Next door, California Gov. Arnold Schwarzenegger is ordering state agencies to make 10 percent cuts as a result of the mortgage foreclosure crisis that has roiled the housing market.

California’s struggling with the numbers because so much of its budget is dependent on property taxes. Nevada struggles with its numbers because too much of state spending is dependent on sales and gaming taxes, which can dip anytime the national economy softens.

Already the gaming industry is lobbying to spread the tax burden to businesses it says are still getting a free ride in Nevada: notably retailers, car dealers and banks. Of course, gaming also doesn’t like the giant target on its back that the voting public won’t be able to ignore in November 2008: two initiatives are seeking a higher gaming tax rate. It may not be sound fiscal policy to raise taxes on one sector at the ballot, but it doesn’t readily appear that we’re seeing wiser policy recommendations from Carson City.

Assembly Speaker Barbara Buckley, D-Las Vegas, is channeling the conservatives who, in opposing the record tax increases passed in 2003, urged the state to tap its rainy day fund instead of raising new revenue. “The rainy day fund was created for rainy days,” Buckley said.

We may have the nation’s most consistent sunshine, but it would seem it’s been raining a whole lot in Nevada for a long time.

In the past, “downturns” seemed cyclical, popping up every 10 years or so. In the three legislative sessions starting in 2003 we’ve had record tax increases, record spending and record spending.

To hear the gamers tell it, we’re due for another tax session.

But the Legislature just adjourned in June, and thanks to the voter-approved constitutional amendment that requires 120-day regular sessions every other year, it won’t convene again until February 2009.

Gibbons could drain the rainy day fund and largely avoid any cuts. The current stash in the fund is almost enough to cover Gibbons’ shortfall projections. Then again, we’re still in fire season and will have one more before the Legislature meets again. And there’s no guarantee the projected shortfall will remain at the current estimate of $285 million.

If October is any indication, this won’t be a stellar holiday shopping season for many retailers. Some economists are suggesting the housing market may start to stabilize in the spring. Others predict we’ll see at least another year of woe.

Gibbons is quick to remind everyone that even if he makes his suggested cuts, the current budget will actually be about 12 percent higher than the previous two-year budget. And he notes that every governor in the past 30 years has had this problem during economic downturns.

That would certainly seem to support the notion that the tax system still needs a major overhaul, including everything from reform in the way we collect taxes to diversifying the sources of revenue.

The funniest moment in last week’s summit had to be when Assembly Ways and Means Chairman Morse Arberry actually begged the Gibbons administration to “come up with a solution so we don’t have to cut again.”

In 2003, Arberry, D-Las Vegas, said he supported the $833 million tax hike package so “we don’t have to raise taxes again.”

Of course, if lawmakers had done more than just name a few targets in 2003, we might be further along the road to revenue diversification.

It’s funny how legislative leaders also seem to forget the recent past in favor of the long ago.

Senate Majority Leader Bill Raggio, R-Reno, told KNPR’s “State of Nevada” that Nevada is long overdue for a tax study because it’s been 20 years since PricewaterhouseCoopers did an analysis.

In 2002, Kenny Guinn ordered an update on that report. The Task Force on Tax Policy largely did just that. It recommended tax reforms — some of which died, some of which became law — that led to Guinn’s $1 billion tax proposal.

Businesses and residents alike complain about what they think is broken in Nevada, from quality-of-life issues like clogged roads, bad air, a dwindling water supply or underpaid teachers, a lack of nurses and a social services system that is capable only of intervening in a real emergency (and often even fails then).

Every two years there’s a huge call to spend more, even from conservatives who want something done about traffic or the looming liability in public employee retirement benefits.

Every so many years, there’s renewed calls to increase the gaming tax to something beyond the token rate.

But not enough people take the position that the real problem is the way we fund things here, not just how much we spend. That would require work.

Correction

Last Sunday I mentioned that state Sen. Barbara Cegavske was endorsing former Tennessee Sen. Fred Thompson for the Republican presidential nomination. Cegavske, R-Las Vegas, said that although she is leaning toward Thompson, she also likes former Arkansas Gov. Mike Huckabee and hasn’t offered her formal support to either candidate.

Contact Erin Neff at (702) 387-2906 or by e-mail at eneff@reviewjournal.com.