Appeal Capitol Correspondent Geoff Dornan confirmed last week what we already knew: Gov. Kenny Guinn and the State Legislature will raise our taxes after the Nov. 5 General Election. Dornan reported that the Governor's Task Force on Tax Policy will recommend in mid-November a one-quarter of one percent gross receipts tax on all business transactions, including casino winnings; a new 6.5 percent "entertainment" tax; big increases in cigarette and liquor taxes, and a 10-cent hike in local property tax limits, which will affect all Nevada taxpayers.
State Budget Director Perry Comeaux has already acknowledged that "new taxes or other new revenue may be needed if the Legislature's projection of a $333 million (budget) shortfall is correct." In a meeting of the Interim Finance Committee last month, fiscal analysts presented two scenarios: (1) if sales tax revenue grows by 5.8 percent and gaming tax revenue by 4.5 percent, the 2003 deficit will be about $306 million; but (2) if sales and gaming taxes grow by only 4 percent, the budget deficit will reach $333 million. With tourism and gaming revenue down sharply in the wake of the 9/11/01 terrorist attacks, I'm betting on Scenario No. 2.
Although Comeaux told lawmakers he could balance the budget without raising taxes -- by cutting the budget and tapping the state's emergency fund -- most analysts believe new taxes will be necessary, beginning with a one-quarter percent gross receipts tax that would apply to all businesses including casinos with gross winnings of more than $134,000 per month. And we'll almost certainly see an increase in our local property taxes.
At a meeting of the Governor's Task Force last month, the powerful Nevada Resort Association endorsed the new business tax if it applies equally to all businesses in the state, and not just to casinos. As outlined, the proposal would boost the highest gaming tax rate from 6.25 percent of gross winnings to 6.5 percent, far less than the confiscatory 64 percent gaming tax increase proposed by State Sen. Joe Neal, the North Las Vegas Democrat who's running against Governor Guinn.
Although I've always opposed Neal's "soak the gamblers" approach to state tax policy, I've repeatedly advocated raising the top gaming tax rate by one-quarter to one-half of one percent. But because of Neal's ridiculous proposal, the Legislature has been able to avoid a serious discussion of gaming taxes, which haven't been raised since 1989. The truth is that Neal's absurd plan makes him the casinos' best friend because as long as his is the only alternative on the table, it's easy for lawmakers to dodge the issue and keep their campaign contributors happy. That's why Bill Bible and Harvey Whittemore should applaud every time Neal opens his mouth.
According to the experts, the new business tax would produce more than $200 million in additional state revenue, with casinos contributing 20 to 25 percent of that amount. The amusement tax could generate as much as $122 million and increased property taxes (that's us, folks) another $62 million. But some experts still think the state could cover the predicted shortfall with an overall three percent budget cut and by tapping the state's $136 million "rainy day" fund.
On Thursday, Governor Guinn initiated the process by announcing a three percent budget cut that will save nearly $38 million and eliminate 44 jobs in the Corrections and Human Resources departments. The cuts will slow welfare payments, eliminate health care for some poor children, reduce prescription drug coverage for some elderly Nevadans and end Medicare benefits for 2,900 low-income workers who lost their jobs after the Sept. 11 terrorist attacks. And, as part of the governor's austerity program, the University of Nevada, Reno, must reduce its $133 million budget by $6.5 million.
"We just can't cut any more," Guinn said on Thursday. "There is no fat in the budget. We're down to the muscle." Earlier this year, he finally recognized the need for new and/or increased taxes. "Somehow or another we are going to have to raise new revenue," he said. "We have no other choice." Nevertheless, many businessmen and the Nevada Taxpayers Association oppose the new gross receipts tax on grounds that non-gambling businesses would pay a disproportionate share of the tax bill.
"Those who say we can afford to do more really don't understand business," said David Howard, executive director of the Reno-Sparks Chamber of Commerce. "The bottom line is that we're doing more than our fair share." As an example, he cited a 1991 state license tax that requires employers to pay $100 per employee per year and generates $80 million in annual revenue. "The $100 (tax) hurts a lot of Chamber members," Howard added. But high-powered casino lobbyist Harvey Whittemore countered that the new business tax proposal proves (although I don't know how) that the gaming industry is already paying "more than its fair share" and represents a setback for Neal and others "who want to penalize the industry."
We'll hear more of that argument during next year's legislative session, when lawmakers will have to decide whether the gaming industry is really shouldering its fair share of the tax burden. It will be a heavyweight political battle between the Taxpayers Association and Chambers of Commerce on one side, and the Resort Association on the other. I can hardly wait. In the meantime, let the whining begin.
Guy W. Farmer, a semi-retired journalist and former U.S. diplomat, resides in Carson City.