Business group may back tax plan this week

If the GEA does endorse a tax plan, it will be the first such organization to do so. A rival business group, the Las Vegas Metro Chamber of Commerce, has steadfastly refused to endorse any tax plan, although it has repeatedly promoted and introduced a study by the Tax Foundation that recommends a sales tax on services for Nevada, among other reforms.

Las Vegas Global Economic Alliance CEO Tom Skancke, in an email to board members, reminded them that the GEA has already endorsed Gov. Brian Sandoval’s proposed increases in spending on Nevada’s schools. Now, Skancke said, it’s incumbent upon the GEA to take a stance on the revenues needed to pay for that plan, according to one board member who’d received the email.

The board will hear a report from Susanne Trimbath, an economist with stints at the Milken Institute, KPMG and the Federal Reserve Bank of San Francisco on her resume. The GEA hired her to examine several tax proposals, including an increase in the modified business tax (aka payroll tax), Sandoval’s proposed progressive business license fee and the Tax Foundation’s sales tax on services plan.

Of the three ideas, Trimbath’s reports seem most sympathetic to Sandoval’s plan. In her report, a copy of which I’ve obtained, she says:

• The Business License Fee would result in a “negligible” decrease of $14.6 million in gross state product.

• The fee would shift some of the burden of taxation away from payroll, resulting in a small positive impact on jobs.

• Structured as a fee instead of a tax, “…there will be minimal impact on economic development in Nevada from increasing the business license fee as proposed.”

• The Legislature should consider dedicating the proceeds of the increased fee strictly to education, in part to avoid the criticism that arose during the 2014 debate on the margins tax that proceeds could be used for other purposes.

• Nevada could expect a 1.1 percent decline in business investment if the business license fee were implemented. “In comparison to recent growth, this would result only in a slowing of growth rather than a net reduction in economic development,” the report reads. “It could be argued — assuming the additional revenue is spent wisely to improve education in the state — that any short run decline in business activity would be offset by increased growth in the future as a result of improved human capital.”

• The state should do what it can to make the reporting and calculating of the business license fee as simple as possible, the way it does currently with the payroll tax.

By contrast, Trimbath was more skeptical of the Tax Foundation’s report and recommendations for Nevada tax reform. In her review of the Foundation’s “Simplifying Nevada’s Taxes: A Framework for the Future,” she writes:

• Implementing all of the Tax Foundation’s recommendations has the potential to reduce state tax revenues by $226 million per year, unless the property tax is virtually doubled. “Raising property taxes to pre-recession levels, an apparent goal of the [Tax Foundation’s] reform recommendations, would increase business taxes by 2.4 percent, have a negative effect on the growth of business investment in Nevada and reduce the ability of Nevada businesses to attract and retain employees,” Trimbath writes.

• The Tax Foundation report misses some details. For example, it decries the lack of recovery in the construction industry without noting that industry was “greatly over-sized” before the recession hit. “Construction is not a long-term solution to economic recovery and development,” Trimbath writes.

• There are significant constitutional and legal impediments to some of the Tax Foundation’s recommendations. “Importantly, constitutional amendments would be required to exempt business-to-business transactions from state sales taxes,” she writes. “Neither the rate nor the base (object of taxation) of the state 2 percent sales tax can be changed without a referendum. Though not forcefully put, the bulk of the [Tax Foundation’s] suggested reforms would require addressing this referendum or continuing to do the one-off adjustments that have been used for 30 years.”

• Trimbath notes some calculations in the Tax Foundation’s report differ from other while studying the same taxes.

• Sweeping changes such as those suggested in the Tax Foundation’s report create uncertainty. “In combination with the wide variety of legislation listed in the table below — and the fact that this debate is taken up perennially — these factors make for undue regulatory uncertainty that impacts the ability of businesses to make efficient and effective strategic plans for operating and investing in Nevada.”

The GEA’s board might also have another factor to consider: A Tarrance Group poll conducted Feb. 21-23 and released today found, among other things, that voters favored Sandoval’s business license fee proposal 56 percent to 41 percent overall, with a majority of Democrats (67 percent in favor) and independents (55 percent in favor) saying they approve. (Republicans were opposed, 43 percent for to 54 percent against).

That’s a bigger margin of support than was found for expanding the sales tax to services (40 percent favor, 57 percent opposed), expanding the sales tax to services and lowering the rate (41 percent favor, 50 percent opposed) or increasing the payroll tax (20 percent in favor, 73 percent opposed). Only increasing taxes on cigarettes (74 percent favor, 24 percent opposed) or applying the gross gambling tax to owners of 75 or more slot machines (63 percent in favor, 29 percent opposed) scored higher on a similar survey conducted in January.

Oh and Sandoval hasn’t suffered for proposing the business license fee or more than $800 million in increased education spending, either. His favorability rating is 75 percent, with just 17 percent saying they view him unfavorably. Sandoval gets high marks across the political spectrum, including Republicans (85 percent favorable), independents (76 percent favorable) and even Democrats (67 percent favorable).