In this presidential election year there has been an ongoing and vigorous debate, nay, a knock-down-drag-out fight over the question of whether the wealthy pay their fair share of federal taxes. There is ample ammo for both sides of that argument.
But when it comes to state and local taxes there is no debate. The tax data from nearly every state shows those tax practices are highly regressive, meaning the poorer citizens pay a disproportionately higher share of their income in state and local taxes than wealthier citizens, which is simply unfair.
This was detailed by an October 2018 analysis by the Washington-based Institute on Taxation & Economic Policy. The study found that on average nationally the lowest-income 20 percent of taxpayers face a state and local tax rate more than 50 percent higher than the top 1 percent of households. The nationwide average effective state and local tax rate is 11.4 percent for the lowest-income 20 percent of individuals and families, 9.9 percent for the middle 20 percent and 7.4 percent for the top 1 percent.
The institute concludes, “Most state and local tax systems worsen income inequality by making incomes more unequal after collecting state and local taxes.”
The study found that Nevada was the fifth worst state in the nation for taxation inequity. The effective tax rate for the poorest 20 percent of Nevadans was 10.2 percent. For the middle 60 percent the rate was 7.4 percent. For the top 1 percent the rate was a paltry 1.9 percent — the lowest tax rate in the nation for that earnings group. This inequity is due to reliance on sales and excise taxes, because poorer families must spend a higher portion of their income on taxed necessities.
Of course, when the Clark County teachers union earlier this year launched two tax hiking ballot initiatives to increase funding for education the biggest was a proposal to hike the sales tax by $1.1 billion a year. The other was to hike the gaming tax to raise $330 million a year.
The sales tax initiative would increase the Local School Support Tax — a part of the statewide sales tax — from 2.6 percent to 4.1 percent, a 58 percent increase. If the union gathers enough petition signatures it would go before the Legislature in the spring of 2021, tax loving Democrats already hold a supermajority in the Assembly and are one shy of a supermajority in the state Senate. Thus this November’s General Election is significant at the state level, too. If lawmakers fail to impose the taxes, they would go before the voters on the November 2022 ballot.
If passed, in Clark and Lincoln counties the overall sales tax would jump from 8.375 percent to 9.875 percent, among the highest rates in the country. In Mineral, Eureka and Esmeralda counties, which have the lowest current sales tax rates in the state, the tax would jump from 6.85 percent to 8.35 percent.
The impact on poorer families would be devastating.
Earlier this month the board of directors of the Nevada Taxpayers Association (NTA) announced its opposition to both the sales and gaming tax propositions, saying such a drastic change in the taxation policy should be thoroughly debated by all stakeholders and that should be conducted via the standard legislative process, not through a ballot initiative.
“An increase of $1 billion in annual sales tax revenue is likely to affect tax neutrality and change consumer behavior,” the NTA said in a press release. “The exporting of the tax burden to non-residents is also of concern given the importance of tourists to our statewide economy. As with the Sales Tax, an annual increase in the Gross Gaming Tax of $330 million is very likely to cause unpredictable economic consequences. The focus of this tax on one industry is prone to have a harmful effect on gaming companies and their employees.”
The NTA also pointed out that the two tax hikes would represent an annual increase of 28 percent in taxation, but the propositions contain no performance benchmarks that would assure taxpayers get a return on their investment.
In fact, most of the performance benchmarks enacted when lawmakers in 2015 approved a $1.5 billion tax hike targeted to improve education have been rescinded. No longer are third graders who can’t read required to be held back a year, and while student achievement was once 50 percent of a teacher’s evaluation that has been cut to 15 percent.
These tax proposals will hurt poor families without ensuring education improvements.