Every time someone kicks over another margin tax rock, another monster comes crawling out.
We’ve already learned from previous studies and analyses that The Education Initiative, or margin tax, on the November General Election ballot might not raise as much revenue for education as promised by backers, that the money raised by the tax could be diverted from education to other uses as lawmakers have done in the past, that it could destroy as many as 3,600 private-sector jobs, would increase Nevada’s effective corporate income tax to 15 percent (nearly double California’s 8.8 percent rate) and inflate consumer prices for everyone.
The Nevada State Education Association managed to gather enough signatures and survive enough court challenges to put before the voters a 2 percent margin tax on all Nevada businesses that gross more than $1 million a year. Some deductions for expenses are allowed. The union has estimated the tax would bring in $800 million a year in additional funding for K-12 education. It will be Question 3 on the ballot.
The Coalition to Defeat the Margin Tax Initiative — which is made up of retailers, miners, manufacturers and assorted businesses and business groups — recently published another study of the tax’s effects on Nevadans.
This latest study was conducted by Nevada economist John Restrepo and his RCG Economics firm in collaboration with UNLV economist Alan Schlottmann and others.
Restrepo focused on the impact the tax would have on those who own several businesses, because the tax would treat an owner's various entities as one for tax purposes.
“For example, one person may own a car wash business and a retail store with annual revenues of $450,000 and $600,000, respectively,” the report explains. “Each company is considered an independent business establishment, but because they share a common owner, these companies would be combined into an affiliated group for the purposes of the Initiative” and thus exceed the $1 million threshold.
When those shared-owners are calculated, 16,288 large and small Nevada businesses would be affected by the tax.
Dan Hart, a spokesman for The Education Initiative, has dismissed businesses qualms about the harms of the tax by saying that 87 percent of Nevada businesses wouldn’t be subject to the margin tax, because their gross receipts are less than $1 million.
He fails to mention that nearly 80 percent of Nevada’s small businesses have no employees whatsoever, while those that would be subject to the tax employ a majority of private-sector workers in Nevada.
This latest study in fact estimates the tax will affect the employers of 608,000 workers, representing 63 percent of private jobs in 2013. “On a per employee basis, the margin tax would be an equivalent of $1,314 per year,” the report concludes.
The study also breaks down the effective tax rate by type of business. When the margin tax is combined with the current modified business tax, the study found a residential home builder would pay a tax rate of 4.7 percent, while a patient care facility would pay 13.8 percent, a construction wholesaler 42.5 percent, some real estate brokers 86.4 percent and family owned restaurants would be taxed in excess of 100 percent.
Those are merely the current knowns that can be calculated. The report points out that future bottom line impact is incalculable.
“Unless the long-term impacts of the proposed margin tax to the Nevada economy and its residents are clearly understood, a full analysis of the economic and business ramifications of the tax on the state’s economy is not possible,” the Restrepo report concludes. “The proposed margin tax must be measured and evaluated on its impact to Nevada’s economic growth potential, the state’s economic development efforts, and last but not least, on future business investment. Anything short of this lays the groundwork for a potentially bad public policy that would negatively affect the state’s economic future and the lives of its residents.”
The Nevada Taxpayers Association has warned that many businesses are already struggling to survive the recession and “this tax may prove to be the proverbial straw that breaks the camel’s back.”
Anti-tax coalition spokesman Karen Griffin says that “many businesses that sell goods and services in Nevada would pass on their increased costs from the tax to consumers, increasing the costs we pay for food, clothing, health care, electricity, phone bills, and other products and services.”
There is no guarantee that increased spending on education would improve education. In the past 40 years, Nevada has increased inflation-adjusted education spending 100 percent, while SAT scores have fallen.