As the 2011 Nevada Legislative Session begins next week, interest groups and politicians will be arguing over whether Nevada’s taxes are too low or too high. There is a strong segment of local conservatives and Republicans who think that Nevada’s taxes are too high. The evidence and consensus among academics and think tanks (liberal and conservative) say that Nevada’s taxes are among the lowest in the nation.
Disinformation abounds about the subject, both sides accusing the other of red herrings and abuse of statistical data. A glance through articles by the Nevada News and Views or the Nevada Policy Research Institute, reveal a strong discontent for the idea that the taxes in the Silver State are low.
The only evidence these local conservatives ever use to back up their claim that Nevada isn’t a low tax state is based on the statistic of state and local taxes paid per capita. In other words, they use the average amount of taxes paid per person.
STATE AND LOCAL TAXES PAID PER CAPITA = Total amount of taxes collected by state and local government, divided by the number of people residing in the state (Taxes Collected/Population)
These sentiments were echoed by a small handful of conservative activists I spoke with at a recent Budget Town Hall Meeting at the Grant Sawyer Building in Las Vegas. I even spoke with Republican Senators Michael Roberson and Barbara Cegavske who both told me that Nevada is not a low tax state.
There are glaring problems with these arguments. Even the Tax Foundation says that Nevada residents and businesses pay the lowest taxes in the country. By the way, the Tax Foundation is a conservative think tank that generates public policy ideas for Republicans. Wow! isn’t it ironic that Nevada Republicans primarily dismiss the Tax Foundation’s conclusions on this point?
If we choose to define our tax burden this way, Nevadans rank the 17th highest in the nation for the average amount of taxes paid per person (2006 data). Senator Michael Roberson also pointed me to the 2008 study, which ranked Nevada 25th highest (suggesting government collected less money in 08 than in 06). Either way, the problem with relying on this per capita statistic is that it ignores two crucial factors; 1) Income and 2) the amount of taxes collected from tourists and non-residents.
Income is Vital When Determining Relative Tax Burdens:
The average amount of taxes paid per capita in a state doesn’t really tell us much about the tax rate. Tax rates are really what we are looking at when we are talking about tax burdens.
Tax Rate = Total taxes collected divided by income of residents (Taxes/Income)
Knowing the tax rate will tell us how much of each person’s income the average Nevadan pays in taxes. If I’m paying $500 a year in taxes, but only make $2000, then I’m paying a 25% tax rate. If I pay $500 a year in taxes and make $50,000, then I am only paying a 1% tax rate. So it is clear that the amount of taxes paid per person tells us little about the “tax burden” unless we include the income.
Nevada’s tax rate is 6.6%, literally the lowest in the nation (just two tenths a point behind Alaska’s 6.4%)
Let’s look at the top three states the Tax Foundation says has the lowest tax burdens (2008 data).
State Tax Foundation “Tax Burden” Per Capita taxes paid (state and local)
Alaska 50th (lowest) 1st highest
Nevada 49th (second lowest) 25th highest
Wyoming 48th (third lowest) 3rd highest
Look at that, they all are ranked among the highest in taxes paid per person, but considered lowest in tax burden. Hmmmm.
Quick Fact: Tax Foundation’s data from 2008 ranks Nevada 7th in per capita income (see table 2 of Tax Foundation 2008 Study-referenced below). Sadly, Nevada’s tax structure is ultra regressive, meaning that people with lower incomes pay a higher rate of taxes than people with higher incomes. The tax rate in Nevada for people making $25K is actually double that of those making $150K. Much of this can be blamed on Nevada’s reliance on sales tax.
Non-resident Tax Collection
Nevada’s tax structure is largely focused on tourism and therefore is fortunate to have a large portion of taxes paid by tourists and non-residents. Why not? We have to consider that taxes pay for the infrastructure (roads, utilities, etc.), which must be built to accommodate the large number of people who visit from elsewhere, including foreign nations.
Nevada builds and expands roads and airports, and regulates all these services and others, including limousines and cabs. Local governments often help assist in the building of various attractions to make the tourism economy thrive. A great deal of money is spent to provide emergency services and public safety adequate enough for one of the largest tourist destinations in the world. These demands have been growing concurrently with the expansion of Las Vegas and other areas.
The Nevada News and Views (NN&V) and the Nevada Policy Research Institute (NPRI) largely ignore these facts and other crucial data when they simply use statistics that show high per person tax numbers. It is really amazing that they can argue with another conservative think tank about what tax burden really means when it doesn’t fit their platform.
They also enjoy citing to the large percentage increases in government spending in Nevada over the past decades without considering population increases, higher demand, increased tourism, and Nevada’s growing total income (Gross Domestic Product or GDP). Should the amount of taxes collected in Nevada remain the same, despite a dramatic increase in income, populations and demands?
Tax Burden = Taxes paid by RESIDENTS divided by their income (See Tax Foundation 2008 Study)
When determining relative tax burden, only taxes paid by residents are really useful. Still, even when you add non-resident taxes collected, Nevada has the 9th lowest tax rate in the nation (See previous reference).
The bottom line on Nevada’s taxes
Bottom line, Nevadans pay less in taxes than anyone else in the country. Nevada is ranked 2nd lowest in tax burden for individuals and is ranked 4th best in business tax environment (both statistics provided by the conservative Tax Foundation).
The real problem with Nevada’s tax structure is that it unfairly burdens those of lower incomes more than residents with higher incomes. It also relies too heavily on tourism. Both of these factors tell us that the wealthy are gaming the system to the detriment of our state.
Nevada’s state budget is in peril right now. Governor Sandoval is proposing major, drastic cuts to our education system, mental health services, and other vital services our community needs. Somehow, he managed to simultaneously propose an increase in spending on prisons. Something just isn’t right here.
A change is badly needed. Are the people of this great state smarter than NPRI and NN&V? We can only hope so, because that is a prerequisite if politicians are ever to have the public support and confidence to make the just and necessary changes to Nevada’s tax system and avoid these devastating cuts being pushed by Republicans.
Justin is the publisher The Nevada View, which has earned the recognition in the Washington Post’s “Best State-Based Political Blogs,” as well as being awarded the “Most Valuable Blogger Award” by the local CBS affiliate in 2011. Follow him on Twitter @McAffee