Nevada lawmakers plan to spread the tax pain

Legislative Democrats are looking at a revenue-raising plan that spreads the pain across most of the state's major tax sources.

The idea is to increase taxes proportionally so that each revenue source continues to provide about the same percentage of total collections, deflecting criticism that one industry or sector is taking a bigger impact than any other.

Sales taxes would continue to make up 32 percent of the total, gaming fees 28 percent and so on. Exceptions might be made where Nevada's rate for a tax is already higher than other states.

The budget office says Nevada needs to raise more than $1 billion a year to maintain current services. Gov. Jim Gibbons has promised to veto any tax increase presented by the Legislature.

Whatever plan lawmakers come up with, they would have to get a two-thirds majority in each house to override a veto. Democrats hold a two-thirds majority in the Assembly. Senate Democrats would need two Republicans to join them to get a veto-proof majority.

Assembly Speaker Barbara Buckley and Ways and Means Chairman Morse Arberry would not confirm the tax-raising plan is under discussion.

Buckley said that before considering how to raise state revenues, "we need to know what to cut, what to reform and what to preserve."

That, she said, will give lawmakers the amount they need to raise.

"We need to know what is that number," she said.

Arberry, who also sits on Taxation, said he has long thought the best way to get through the current crisis would be to raise every tax a little bit.

But he said there isn't an actual plan yet and that lawmakers can't create one until they know how much revenue will be needed.

A temporary fix with immediate results

Democratic leaders have said they will announce their revenue plan midway through the 2009 session. But they have been tight-lipped about what it will include to keep opponents from building a case against it.

They asked staff to prepare an analysis showing the current revenues generated by each major General Fund source and the amount of money an incremental increase in each would produce.

They are keeping those numbers close to the vest, but using the December revenue projections produced by the Economic Forum, it's not difficult to calculate.

The sales tax, for example, would be the biggest revenue producer, generating about $110 million each year for every quarter-percent increase.

Marvin Leavitt, one of the state's most respected governmental finance experts, said it would be a logical way to get the state through this biennium. He added that, politically, no one industry or group would be able to say they were being singled out.

Leavitt said the administrative structure is already in place to collect those taxes so there would be no delay in implementing the changes.

"It has the advantage that the money is available immediately," he said. "You get your tax money the first month of the year."

"Then you could work through the interim on what to do permanently," he said.

Several lawmakers contacted said a temporary fix will have to be done because there isn't time to completely redesign the state's tax system before the legislative session ends in June.

"Any kind of longterm solution isn't going to be done in one session," said Assemblywoman Debbie Smith, D-Sparks, who sits on Ways and Means.

Both Arberry and Buckley said lawmakers also need to determine how the federal stimulus package will change the amount needed as well as the adjustments the Economic Forum makes to the revenue projections May 1.

Arberry said that leaves very little time before the end of the 120-day session to make major changes.

"What I'm hoping is we're going to do the best we can to keep as much of the budget whole as we can," Arberry said.

Hundreds of millions in potential revenue

After the sales tax, major revenue sources for the General Fund include the gaming percentage fee, modified business tax, live entertainment tax, insurance premium tax, real property transfer tax, and liquor and cigarette taxes.

Liquor taxes, which are different for beer, wine and hard liquor, are difficult to calculate. The same is true of live entertainment, which taxes food and refreshments for small venues but not large ones and uses different rates for large and small rooms.

But potential revenue from raising other taxes can be estimated using the December Economic Forum projections. Those estimates, however, are not adjusted for the slump in the economy since the forum made its projections " a much more complex calculation since not even the best economists have been able to predict the depth and length of the recession.

The second biggest revenue generator is the gaming percentage fee, currently 6.75 percent for most casinos. If, for example, lawmakers raised that a quarter-percent, it would add another $26 million a year.

Similarly, the modified business tax would generate about $100 million a year for each quarter-percent increase. That would be nearly a 50 percent increase over the 0.63 percent of payroll employers now pay.

The insurance premium tax, currently at 3.5 percent, would generate about $18.5 million for each quarter-percent increase.

With the collapse of the housing market " both in price and number of sales " the real property transfer tax has fallen more than 30 percent below original projections. Raising the $1.30 rate 25 cents would add just under $13 million to the state's revenues next year.

The cigarette tax is currently 70 cents a pack. A 25-cent increase would bring in another $36 million a year.

Contact reporter Geoff Dornan at gdornan@nevadaappeal.com or 687-8750.