‘Education initiative’ is really disastrous margins tax

A July 25 letter in the Reno Gazette-Journal from a retired Washoe County School District employee shows that the teachers’ union campaign for the margins tax on the November ballot will reach new lows of dishonesty and deception.

The deception starts with the title of ballot question 3, “The Education Initiative,” with 84 confusing sections, but only one on education. The letter by Stephen Norman of Sparks says it “was developed to provide appropriate funding for a quality education for all Nevada children.” The measure does not assure that a single new penny goes to K-12, but they gave it the “Education” title to con voters into believing it will better education.

If the proponents of the tax had any wholesome intent and intellectual competence, they would say just how much the measure will raise our taxes ($700-million dollars a year) and how much of that will be spent on education. Instead, they hide behind bland and misleading phrases like “appropriate funding”.

Norman says, “Nevada’s education budget has been cut by $700 million since 2009!” He gives no source for this claim, but by its very terms it’s intentionally misleading. The reason is that it references budgets, which include wish lists of school districts and other tax-eaters, not spending. An explanation of the ways in which such budget figures are artificially inflated to mislead and be useless is so long that it must wait for another day.

The key facts about actual spending are these: Over the last 20 years, state general fund K-12 spending in real terms (net of inflation) per student has risen about 40 percent — faster than spending on any other major budget category. However, the per-person real incomes of Nevada families and businesses paying the taxes to support those schools rose only about ten percent. That is, despite all the rhetoric about shorting our schools and kids, the spending has risen hugely and become an ever larger burden — by 30 percent — for beleaguered taxpayers.

In fact, total state spending in that time, driven by rapid increases in K-12 and Health and Human Services, has risen about 20 percent faster than the incomes of Nevadans. Worse, in the Great Recession and Obama’s non-recovery of the last five years, per-person real incomes of Nevadans have fallen by ten percent while state K-12 real per-student spending has increased by that amount. The only actual spending cuts occurred after the legislature’s blow-out when it foolishly hiked 2009 real per-student spending 19 percent.

Norman also falsely claims, “Our schools spend just over $7,000 per student, whereas the national average is well over $11,000. As a result, Nevada ranks at or near the bottom on nearly measures of education quality.” In fact, for school year 2011-12 (the latest one for which complete state-by-state figures are available), Nevada revenues spent on K-12 were $9,457 per student, and that figure is now near or above $10,000. The teachers’ union likes to quote lower “current spending” figures, as if the dollars we pay to build new schools don’t really count and aren’t a burden on our families and businesses.

Also, numerous studies over many years have consistently shown no significant correlation of student achievement with spending. What’s really needed is not throwing more money at a failing system — as we’ve already done — but instead reforms such as reduced administrative bloat and increased parental choice, competition and pay-for-performance accountability for teachers. That’s the answer to his question of what alternative there is to increased taxes and spending.

Further, actual K-12 per-student spending by the state of Nevada, at $5,603, is 25th among the 50 states, and compared to the incomes of state residents, Nevada state spending ranks 14th among the states. Only the very low federal and local contributions drag down overall Nevada per-student spending below national averages.

Next, he claims “Nevadans are asking for a 2 percent margins tax for corporations making more than $1 million. Many states have similar taxes, even Texas, and it has not affected their jobs at all.” One lie here is the claim that Nevadans are asking; it’s only the teachers’ union. Worse is the claim that the tax applies to businesses “making more than $1 million.” In fact, it would apply to all firms with total revenues (not net earnings or profit) of $1 million, even if they are losing money. Thus, the margins tax would apply to many small businesses (restaurants, trucking companies, ranchers, etc.), not just large corporations, and it will kill some of them and many jobs.

Contrary to the misleading suggestion that the Nevada margins tax would be similar to Texas’s tax, the Texas rate is only one-fourth the proposed Nevada rate. And Texas’s tax includes many deductions and exemptions that question 3 does not, and these have the effect of greatly lowering the effective tax rate. Finally, he fails to mention that, even with those mitigating features, moves are already afoot to kill Texas’s tax because it burdens many businesses and kills jobs.

So, it’s no wonder that so many public-spirited people and organizations — even private-sector labor unions fearful for their jobs — are lining up against this badly drafted and very destructive proposal.

Ron Knecht is an economist, law school graduate and Nevada higher education regent.