NPRI Provides a Living Lesson on Tax Scare Tactics

On the release of news “that the groups [involved] were finally ready to file the initiative petition,” to create a business margin tax, NPRI immediately, as expected, began attacking it.

As Lynn Warne, president of the Nevada State Education Association, explained “Basically it is a 2 percent tax on a business entity’s taxable margin for that year.” “The threshold for paying the tax is a business making more than $1 million in gross revenue. This threshold is expected to protect small businesses from having to pay the tax [and] is expected to bring in about $800 million a year,” she said.

”Unfortunately, tax reform plans can be smeared by scare tactics.” ”For example, opponents of tax reform frequently claim that raising taxes on the wealthy or corporations will drive businesses away from a state and cost jobs.”

Such is the current case with the Nevada Policy Research Institute (NPRI):

“it’s businesses that will be crippled if Nevada passes a margins tax.”
“Implementing TX’s .7% margins tax caused layoffs at 20% of small biz,” ”Imagine what 2% tax would do to NV.”

“These arguments are usually based on conjecture rather than research,” which as usual is all NPRI really has to support itself. “The goal of these scare tactics is not to inform voters—it’s to make tax issues seem harder to understand than they really are, and to create confusion about what a reform proposal really does.” Venturing over to NPRI’s repetitively self-cited blog post shows that they are in fact trying to confuse and scare readers with such jewels as:

“Newton: Small businesses in Texas are struggling mightily under the margins tax. After the legislature enacted this tax in 2007, many companies had their tax burden increase tenfold and a survey of our members showed that 40 percent of them saw an increase in their state tax liability of over 500 percent.
This money had to come from somewhere and a 2008 survey we conducted showed that, because of the tax, roughly 20 percent of small businesses reported that they would have to lay off employees and another one-third reported they would have to leave jobs unfulfilled.
The margins tax has caused thousands of individuals to lose their job and prevented thousands of businesses from hiring more workers.“

There are a lot of problems with this passage. The first is that “Newton” represents an Anti-tax group from Texas which is not citing data but rather is relying on his own opinion. It is never advisable to make tax policy decisions based on innuendo or a single person’s opinion. The second problem with this passage is that Mr. Newton is guilty of the same hyperbole that NPRI regularly uses to scare people. He cites gigantic percentages based off of incredibly low initial tax rates which make the end results seem bigger. Another problem with Mr. Newton’s opinion is that for the years following 2007 the whole American economy was in a recession period with massively reduced product and services demands. Of course companies had lay offs during this period. However, there is no correlation between those lay offs and tax rates, which is what NPRI and Mr. Newton are trying to imply.

NPRI goes on to say, “At $1.6 bil every 2 years, that’s a 25% tax increase,” which is an obvious attempt to sensationalize and scare people. First, NPRI has to bundle the amount that will be collected into a 2 year increment in order to ‘shock’ citizens with bigger numbers. Secondly, they gloss over the fact that businesses in Nevada pay so little into the state tax system that any increase in their taxes will produce a sizable percentage increase. If you look at current data though it shows that Nevada’s businesses pay very low rates in comparison to the vast majority of other states and they surely are not uprooting from those other states and moving to Nevada.

It’s important to not get lost in the anti-tax reformers ‘smoke screen’ though. We must remember that one of the reasons to support such tax initiatives is because it produces a more fair and progressive tax system while providing a widely needed social good. A fair tax system “means asking people to pay according to their ability,” and the largest businesses in Nevada can more than afford to pay a measly 2% margins tax.
It is “important to highlight the linkage between the taxes you want to reform and the public services that are provided by these taxes. If you ask most people whether they favor raising the state income tax, they’ll probably say no. But if you ask people whether they favor raising the income tax to help fund education or health care, they will be much more supportive. Most people understand intuitively that the public services they value can only be provided if the tax system raises adequate revenues to pay for them—so it’s important to remind people that the ultimate purpose of tax reform is to ensure the continued provision of these services.”

Anti-tax reform groups, like NPRI, feeling like they have duped and confused middle class citizens go on to state that “research shows there’s little to no correlation between $ and student achievement.” The facts are not on their side though. As the Student-Teacher Achievement Ratio (STAR) project and the Student Achievement Guarantee in Education (SAGE) project have shown, “Research concentrating on class size is important because the findings have largely concluded that smaller class size leads to increases in student achievement, helps to close the minority-majority achievement gap, and has several other long lasting benefits.” Class size reduction though isn’t possible without an increase in the number of teachers in classrooms within a district. Logic tells us that these increases in teacher counts will cost money. Thereby showing that increased financial investments in schools most certainly does increase student achievements, as well as providing other socially relevant benefits.