WARNING! Making Nevadans pay the nation’s highest average sales tax won’t fix our schools

This article was written by Michael Schaus of Nevada Policy Research Institute and published on March 3, 2020.

https://www.npri.org/commentary/another-billion-dollar-tax-hike-education/

Nevadans deserve an education system that actually works for students, not merely one that takes more hard-earned money from working families.

The Silver State already spends roughly $10,200 per student — an amount comparable to numerous states (and nations) that outperform us academically on a regular basis. And yet, the Clark County Education Association (CCEA) is convinced that a simple billion-dollar tax hike will, somehow, fix all our education woes.

Earlier this year, the CCEA announced plans to lobby for a couple of tax hikes that would generate a whopping $1.4 billion in new revenue for public education. More than $300 million would be generated by a higher gaming tax, with the bulk of the revenue (roughly $1.1 billion) coming from an increase to the state’s sales tax.

If successful, the CCEA’s tax hike would give Nevada the dubious distinction of being home to the nation’s highest average sales tax — higher even than liberal enclaves such as California, New York and Massachusetts.

Which is an important point, given that Nevadans already earn less than residents in those other states, with private sector median earnings ranking 47th out of 50 states after cost of living adjustments — hardly the economic demographic equipped to deal with a billion-dollar sales-tax increase.

Of course, The CCEA tells us such a tradeoff must be made if we expect to “fully fund” public education — an argument that is either rooted in deep ignorance of current education funding levels, or outright dishonesty. After all, it’s not as if Nevada is spending pennies on education when the rest of the nation is spending dollars. Our per-pupil spending levels are perfectly in line with states that have consistently higher levels of academic performance, such as Arizona, Colorado, Idaho, North Carolina, Tennessee, Texas, Utah and Florida.

More importantly, we’ve been down this road before. Since the 1960s, per-pupil funding in Nevada has tripled. Just five years ago, Republican Governor Brian Sandoval signed into law the state’s largest-ever tax hike for the ostensible purpose of “fixing education.” And yet, academic performance continues to disappoint.

Maybe, before asking Nevada families to pony up an extra billion dollars in sales taxes, we should figure out why previous spending increases didn’t deliver any substantive gains.

The truth is, what we’re lacking in public education isn’t “more money.” It’s accountability. Clark County School District, for example, is home to more than 100 schools that have consistently received failing grades from the state. Nearly three-quarters of eighth grade students aren’t proficient in reading, and at least one Clark County school was reported to have a whopping 99 percent of students ranked as “below grade level” in math.

And yet, the district’s official evaluations claim there isn’t a single ineffective principal or administrator in any of the district’s nearly 400 schools. The official teacher evaluations made a similar claim, describing a mere 0.1 percent of the district’s 20,000 teachers as “ineffective.”

It doesn’t take a statistician to realize those evaluations don’t exactly mesh with reality. However, it’s unsurprising. The system is so insulated from accountability, even a school where virtually every student is behind in math somehow receives “effective” ratings for all of its staff.

Clearly, the education establishment isn’t interested in holding itself accountable. And, unfortunately, parents in Nevada have little recourse, given the state’s distinct lack of educational alternatives to district schools.

Florida, on the other hand, is an excellent case-study in how parental choice increases accountability, with dramatic results for academic outcomes. Despite spending less per pupil than 48 other states, Florida’s academic performance was ranked fourth in the nation in 2018. The reason for such impressive performance was simple: Florida has some of the most expansive educational choice programs in the nation — giving many parents the ability to hold their district schools accountable simply by leaving.

In other words, Florida managed to spend less and outperform almost every other state in the nation by passing reforms that ensure students have access to classrooms that suit their needs — rather than simply pouring more money into classrooms that don’t.

Nevada’s education establishment clearly has no interest in such reforms. Instead, it has consistently fought against policies that would empower parents with greater educational choice or increase accountability, while simultaneously fighting for an ever-larger share of tax dollars.

Making Nevadans poorer by thrusting a billion-dollar tax hike on them isn’t going to change what’s wrong with public education in this state.

It’s simply going to make it more expensive.

NPRI Solution: Unemployment Insurance Tax

Robert Fellner

Unemployment Insurance Tax: Background

Nevada finances state unemployment benefits by imposing an Unemployment Insurance Tax on state employers. The exact rate each employer will pay is determined by a process known as the Reserve Ratio schedule, which is designed to assess a tax rate proportional to the experience of an employer as it pertains to the unemployment system.[1] This is done by calculating the difference between the employer’s yearly tax contributions and the unemployment benefits charged to their account. Thus, employers who frequently discharge employees without good cause will pay higher rates than employers with low turnover.

Key Points

Nevada has the fourth-worst UI tax system in the nation, according to a 2020 analysis conducted by the nonpartisan Tax Foundation.[2] This poor ranking reflects Nevada’s failure to assign the costs of the system in a fair and equitable manner, as well as the fact that costs are generally too high, particularly for new employers.

Because Nevada has an atypically large number of employers in the service industry, which by its nature has exceptionally high turnover rates, it is especially important that Nevada’s UI tax structure operates fairly and does not impose excessive costs on employers who experience high turnover through no fault of their own.

Recommendations

Reduce the taxable wage base. As of 2020, Nevada employers must pay UI tax on the first $32,500 of wages paid to any employee.[3] This is vastly higher than the wage base found in most states. Nevada should reduce the taxable wage base to an amount equal to 25 percent of the average wage or, alternatively, adopt the wage base used by the federal government (currently $7,000).

Reduce the penalty on new employers. New employers must pay a 2.95 percent UI tax rate for their first 14 to 17 calendar quarters, depending on when the employer became subject to the law. This rate is significantly higher than the rate most firms pay after they are moved to the Reserve Ratio schedule.

While new businesses have no experience to draw on and thus cannot immediately be placed on the Reserve Ratio schedule, Nevada should follow the best practices of other states and allow new businesses to move to the Reserve Ratio schedule after 1 year.

Allow good-faith exemptions. Unemployment insurance benefits are supposed to aid those who lost their jobs through no fault of their own. As such, businesses who discharge employees without cause pay higher rates, as they are in theory contributing to the need for higher unemployment benefits.

Nevada, however, charges benefits to employers in multiple situations when it is not warranted to do so, like when the employee refuses suitable work elsewhere, has had their benefit award reversed or continues to work in a part-time capacity. Nevada should follow the best practices of other states and provide exclusions for employers in these situations.

Charge benefits fairly. Benefits are charged to employers in two situations, both of which are profoundly unfair and inequitable. First, if a single employer was responsible for 75 percent or more of wages paid for the year preceding employment, all of that person’s benefits are charged to the experience record of that employer. Benefits should instead be charged in proportion to the wages paid.

Stop penalizing employers for employee misconduct. In the event a single employer was not responsible for 75 percent or more of the employee’s wages in the year preceding unemployment, the benefits are charged to all employers in proportion to the amount of wages paid. Unfortunately, employers are not permitted to seek an exemption from charges even if the worker voluntarily quit without good cause or was discharged for misconduct.[4]

All employers should be exempt from charges in the event of voluntary quits or discharges for misconduct and the 75 percent threshold should be abolished in favor of a system that always charges employers in proportion to the amount of wages paid.


[1]Nevada Unemployment Compensation Program, Employer Handbook https://ui.nv.gov/ESSHTML/Handbook/Employer_Handbook.pdf
[2] Cammenga, J. (2019, December 18). Ranking Unemployment Insurance Taxes on the 2020 State Business Tax Climate Index. Retrieved from Tax Foundation: https://taxfoundation.org/best-worst-unemployment-insurance-tax-codes-in-the-country-2019/
[3] Nevada Unemployment Compensation Program, Employer Handbook https://ui.nv.gov/ESSHTML/Handbook/Employer_Handbook.pdf
[4] Ibid.

For more policy solutions from NPRI, be sure to download a free copy of Solutions: A Sourcebook for Nevada policymakers today

Robert Fellner

Vice President & Director of Policy

Robert Fellner joined the Nevada Policy Research Institute in December 2013 and currently serves as the Institute’s Vice President and Director of Policy. Robert has written extensively on the issue of transparency in government. He has also conducted legal research and assisted in crafting legal arguments for numerous public records-related lawsuits, including one which prevailed at the Nevada Supreme Court, resulting in a landmark decision that protected and expanded Nevadans’ rights to access and inspect government records.An expert on government compensation and its impact on taxes, Robert has authored multiple studies on public pay and pensions. He has been published in Business Insider, Forbes.com, the Las Vegas Review-Journal, the Los Angeles Times, the Orange County Register, RealClearPolicy.com, the San Diego Union-Tribune, the Wall Street Journal, the Washington Examiner, ZeroHedge.com and elsewhere.

Robert has lived in Las Vegas since 2005 when he moved to Nevada to become a professional poker player. Robert has had a remarkably successfully poker career including two top 10 World Series of Poker finishes and being ranked #1 in the world at 10/20 Pot-Limit Omaha cash games.

Additionally, his economic analysis on the minimum wage won first place in a 2011 George Mason University essay contest. He also independently organized a successful grassroots media and fundraising effort for a 2012 presidential candidate, before joining the campaign in an official capacity.

No such thing as a “temporary” tax in Nevada

This letter originally appeared in the Las Vegas Review-Journal.

Kudos to state Senate Republicans for challenging the unconstitutional Modified Business Tax extension. The voter-approved, two-thirds constitutional requirement for any tax increase is too vital a taxpayer protection to diminish.

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But on the heels of this legal challenge, one may be inclined to ask: Do taxes ever actually sunset as planned? There’s plenty of recent evidence to suggest “temporary” taxes, in practice, are about as rare as unicorns. Besides the MBT extension, here are a few other “temporary” taxes that have already been, or are likely soon to be, extended into perpetuity:

— DMV technology fee — This $1 fee was supposed to expire in June 2020, but Senate Bill 542 of the 2019 session extended the fee for at least two years. This extension is also being challenged in the pending litigation, having been approved with less than two-thirds support in the Senate.

— Clark County’s “more cops” sales tax — The authorizing legislation called for a sunset date of October 2025. However, Assembly Bill 443 of the 2019 session eliminated the sunset provision.

— The Southern Nevada Water Authority sales tax — This 0.25-point sales tax increase is set to expire in six years. However, the authority recently voted to ask the Clark County Commission to drop the sunset provision.

So when politicians promise a tax will be temporary, voters should proceed as if it will eventually be made permanent and act accordingly.

Printed with permission from NPRI.

GOP lawsuit vital to protecting our representative system of government

GOP lawsuit vital to protecting our representative system of government

Robert Fellner ,  NPRI Director of Policy

 

In an effort to defend our state constitution and representative system of government, the Senate Republican Caucus recently filed a lawsuit to invalidate a pair of tax hikes that were passed without the constitutionally required two-thirds support.

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After successive, landslide votes in 1994 and 1996, Nevadans amended the state constitution to require a two-thirds majority vote in both houses of the Legislature to pass any bill “which creates, generates, or increases any public revenue in any form.”

Thus, when Senate Democrats sought to pass a pair of bills that would prevent the expiration of one tax and the scheduled decline of another, most expected those bills would require at least two-thirds support to pass.

The Legislative Counsel Bureau, however, determined that a bill which prevents the scheduled decline of an existing tax does not increase revenue and, as such, can be passed by a simple majority vote.

While most would consider the two-thirds provision to be remarkably clear, the LCB found it vague and ambiguous, and ultimately concluded that it only applies to bills that create a new tax or directly increase an existing one.

The LCB claimed that when the constitution references a bill that “creates, generates, or increases any public revenue in any form,” it’s actually only referring to bills that “directly increase revenue,” either by overtly raising an existing tax or creating a new one.

But such an interpretation is strictly prohibited by the rules of statutory construction as articulated by the Nevada Supreme Court, which requires courts to avoid rendering any constitutional text “meaningless or superfluous.”

Because the text of the two-thirds provision references any bill that “creates, generates, or increases” any public revenue, even if one finds that text unclear and in need of further clarification, the resultant definition must be more expansive than just bills which directly increase revenue, in order to prevent rendering the terms of “creates” and “generates” meaningless.

In other words, the constitutional text of “creates, generates, or increases” cannot be reduced to just “increases.”

This is why the LCB’s citation to the state Supreme Courts of Oregon and Oklahoma is not persuasive, as both of those courts were interpreting the narrower phrase of “bills for raising revenue.”

So, what might Nevada’s much broader language apply to, beyond just new taxes or increases in existing taxes as the LCB contends?

Ironically, the answer can be found in the LCB’s own exploration of the intent and purpose of these types of voter-approved constitutional amendments, which were enacted “in response to a growing concern among voters about increasing tax burdens.”

Semantics might allow one to claim that preventing a tax from declining as scheduled isn’t technically a direct increase in revenue, but it unquestionably generates revenue and, more to the point, increases the burden imposed on taxpayers.

Taxes can be thought of as financial instruments where the government collects payments from the public in exchange for producing certain goods or services. Just like bonds or other forms of financial instruments that provide fixed payments over a defined time period, the duration of these instruments is just as important, if not more so, than the payment amount.

One of the unconstitutional bills being challenged by the GOP lawsuit is Senate Bill 542. In 2015, the Legislature imposed a temporary $1 fee that would be collected for five years in order to offset the cost of a new computer system for the DMV.

Nevadans dutifully paid the fee, which raised more than expected, but the new computer system was never implemented after the contractor wasted nearly $30 million due to gross negligence, corruption or both.

Because failure in government is routinely rewarded, the Legislature responded by passing a bill that extended the tax, rather than letting it expire as the original statute required. But notice the absurdity of the LCB’s position: a bill that imposed a $1 fee to be collected for five years would trigger the two-thirds majority, but a bill that would make that fee permanent would not, despite the fact that it would unquestionably impose a much larger burden on taxpayers and yield significantly more revenue than the original bill.

That is basically what happened with Senate Bill 551, which prevented the Modified Business Tax (MBT) from declining as scheduled and, instead, made the higher rate permanent.

Businesses plan and invest based on anticipated long-term costs, including taxes. By changing the law to prevent a scheduled decline in the MBT from taking effect, SB551 unquestionably increased the cost of doing business in Nevada. And because higher taxes on businesses has been empirically shown to reduce job creation, the burden imposed by SB551 will extend to all Nevadans.

Thus, by ignoring the increased taxpayer burden that comes from extending the duration of a tax, the LCB position not only contradicts the plain text of the two-thirds provision, but also its intent.

Adopting the LCB’s position would also create profoundly perverse incentives that would encourage legislators to deceive the public.

Future legislators seeking to raise taxes will face a choice: advertise the proposed tax hike as permanent and reduce the chance of getting it passed, or promise that it will be temporary and increase the chance of getting it passed, knowing it can then be made permanent the following session with a simple majority vote.

This is not a hypothetical concern. Part of the reason Republican lawmakers voted for the Commerce Tax in 2015 was because the law required that some of the added cost would be partially offset by a scheduled reduction in the MBT. As Senator Ben Kieckhefer reportedly said, the scheduled reduction in the MBT “was a mechanism that was inserted specifically to function as it is functioning now and to unravel that, unravels the entire concept of what we approved in 2015.”

By ignoring the plain text of the two-thirds provision and proceeding to reinterpret it in a way that renders multiple parts of the text meaningless, the LCB violates two of the most fundamental rules of statutory construction: First, that courts may not look beyond the statute’s language if it is clear and unambiguous on its face and second, that any reinterpretation of the statute is done in a way that avoids rendering any part of the text meaningless or superfluous.

Further, the LCB interpretation violates the intent of the two-thirds provision by ignoring basic economic, financial and legal principles to falsely claim that extending a tax’s duration does not represent an increase in the revenue collected or burden imposed on taxpayers.

Finally, the LCB interpretation leads to a set of political incentives that encourage legislators to deceive the members of the public they ostensibly represent.

In a representative system of government, where all political power is inherent in the people, it should take much more than semantics and wordplay to subvert the plain text of a constitutional amendment that voters approved by a landslide margin, twice.

The judiciary must uphold the intent and plain meaning of the constitution and require a two-thirds majority vote for any bill that creates, generates or increases any public revenue in any form, so that Nevadans are protected against rising tax burdens, as intended.

 

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