The Margin Tax a Hot Potato for Democrats

— by Rich Dunn, NVRDC 2nd Vice Chair

Last week Nevada Appeal columnist Bo Statham presented the progressive case against this year’s education initiative, an issue that’s dividing Democrats in a year when party unity has never been more important.

Those divisions were plain to see at January’s state central committee meeting, where a resolution supporting the initiative passed 92-78 overall, but was voted down in the north by a 51-3 margin after members heard from construction union representatives that the proposed law would cost jobs in their industry. In the south, a large turnout of teachers put reform of education funding top of mind, so the resolution passed.

All Democrats I know agree that Nevada needs a higher level of funding for public education, unlike many Republicans, who want to divert existing public funding from district schools to private and charter schools. But this is a question of priorities, and the only way to get this state’s priorities straight is to elect more Democrats.

That’s something about which we should all be able to agree, yet in 2010, when we had a chance to elect a governor who made education his top priority, we didn’t see the level of commitment needed to make it happen. Instead we ended up with a Republican governor who allows his party’s tax aversion to trump adequate education funding. Sadly, it appears that our party is now giving him a pass for reelection, which brings to mind the oft-repeated political adage: Elections have consequences.

Margin tax not the answer for state education

— by Bo Statham

The Education Initiative, better known as the Gross Margin Tax proposal, will be on the 2014 ballot for voter consideration. Supported passionately by those who believe Nevada’s public school system requires higher funding, the tax would raise an estimated $800 million a year dedicated to that purpose. The business community vigorously opposes the proposed tax.

This column will not please either supporters or opponents. Instead, it focuses on the need to restructure Nevada’s tax system to more equitably provide required funding for all public needs.

It seems beyond question that K-12 education is in need of greater financial resources, but a gross margin tax on a segment of the business sector would be neither fair nor a good component of Nevada fiscal policy.

Sponsored by the Education Initiative Political Action Committee, formed primarily by teachers and school groups, the margin tax would be a new levy of 2 percent on businesses with annual incomes of at least $1 million. Gaming revenue is exempt. A company could deduct from total income certain expenses or alternatively chose to deduct 30 percent of total income, whichever results in a lower tax.

It is important to understand this would not be an income tax, which is based on a company’s profit. The proposed margin tax would be assessed even if a company made no profit.

The Nevada Policy Research Institute described the margin tax as “one of the most hare-brained schemes ever to come before state lawmakers.” The independent Tax Foundation calls gross-receipts taxes “distortive and destructive.”

Underlying opposition to the tax is the fear it will make Nevada less competitive. But let’s look at the facts.

The Tax Foundation ranks Nevada, one of nine states without corporate and personal income tax, third overall in its 2014 Business Tax Climate index but 36th in Best States for Business and Careers. Forbes concludes, “While Nevada scores well in business costs, it does not score well in factors such as labor supply, economic climate, and quality of life.” CNBC’s 2013 business ratings found Nevada ranked “well in business friendliness and cost of living, but did not rank well in areas such as the economy and education.”

A fair interpretation of these ratings is that Nevada’s fiscal policy results in a very attractive tax burden for businesses and residents but a poor environment for economic development. The state fails to foster skilled labor, education, economic climate and quality of life that are valued by business.

According to a 2011 U.S. Census Bureau report, Nevada’s state revenue per capita of $3,848 was the second-lowest of all states, and state spending per capita of $4,848 was the fourth-lowest. This “low taxes-low public funding” tradition reflects an anti-government mentality that does not serve Nevada well.

Increased financial support is one vital component of improving public education in Nevada, but a gross margin tax is not the way to fund it. The proposed tax would only add to an already-failed fiscal policy that is misguided, inequitable and regressive.

Bo Statham is a retired lawyer, congressional aide and businessman. He lives in Gardnerville and can be reached at bostatham@me.com.

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Giving Away the Store

The whole business of giving tax breaks to businesses to lure them to a particular place is largely a scam.

By William A. Collins

William A. Collins

Sure, I’ll move
My business here;
Whisper tax breaks,
In my ear.

There’s a certain political irony surrounding WWE, that unrivaled producer of violence and misogyny for fun and profit. As a significant employer with 700 workers here in otherwise dowdy Connecticut, the outfit formerly known as Worldwide Wrestling Entertainment has already collected $37 million in state tax credits, with more in the pipeline.

This state largesse has added mightily to the company’s profits, nearly $100 million of which funded two losing U.S. Senate campaigns by its former CEO, Linda McMahon. In her failed 2010 and 2012 bids to become a lawmaker, by the way, she claimed to oppose corporate welfare.

Other tycoons are more honest. Throughout our nation, savvy businesses snooker grants, tax credits, exemptions, forgivable loans, free buildings, subsidized training, and other perks from gullible states and cities. Those governments think that without these gifts employers would move elsewhere. Well, sometimes that’s true, but mostly not. The whole business of giving tax breaks to businesses to lure them to a particular place is largely a scam.

The obvious overriding flaw in this bribery system is that if Town A gains a new business from such giveaways, Towns B, C, and D lose out. It’s a zero-sum game. Overall, the company profits while society pays. Recently the Bridgewater hedge fund wheedled a deal from Connecticut’s government to pay it some $100 million to build its new corporate headquarters in Stamford, three towns down the coast from where it is now. Where else was it going to go, Bangladesh?

CitizenUnitedImage_3

No, Bridgewater needs to be near Wall Street. So, OK, maybe it could move to New Jersey or New York. What we plainly need is not this ongoing bribery competition, but an interstate compact or a federal law making it illegal to subsidize employers to settle in a particular town or state. Let them settle wherever they otherwise think is best, using their own money.

Worse still, some of the biggest bribes nationally go to large corporations to relocate from the North to the South so they can replace their unionized workforce with non-union workers. Not only do these factories collect subsidies to move, but they’re also getting taxpayer dollars to make it easier for them to chisel away at their workers’ security.

The cure for this abuse is federal legislation giving workers equal rights to organize anywhere in the country. It would also help if Uncle Sam could prohibit the use of public money to corrupt the process of selecting a site to locate a factory or corporate headquarters.

There’s probably no way to end our basic inter-town and interstate competition for jobs and tax revenue, but it could be made a lot more beneficial. The idea would be to steer this battle for tax base into healthier channels.

Suppose, for example, that cities competed on the basis of the quality of their schools, or the efficiency of their transit, or the beauty of their parks, or the diversity of their housing? Such public services improve the well-being of citizens and employers alike.

As it is, unfortunately, today’s competition is notably less elegant than that. One “family fun center” in Norwalk, my hometown, just received a grant to upgrade its laser tag equipment. Upstate, an entrepreneur recently collected $100,000 in state funding to create new paintball battlefields. Instead of being tarred and feathered, maybe the officials who granted these giveaways should be lasered and paint-balled.

OtherWords columnist William A. Collins is a former state representative and a former mayor of Norwalk, Connecticut.  Distributed by OtherWords.org