Increased Burdens on Business Won’t Grow the Economy

(Michael Chamberlain/Nevada Business Coalition) – With the highest unemployment rate in the nation and a once-thriving economy that is now lagging behind the rest of the country, how do we best promote economic growth and encourage businesses to expand and put more people to work?  Why, by making it more expensive for them to operate, of course!

At least, that’s the strategy Assemblywoman Peggy Pierce wants to pursue.  Pierce has submitted a bill draft request (BDR) in the Nevada Legislature to impose a job-smothering, business-stifling, broad-based business tax.

Although the details won’t be available unless and until the BDR becomes a formal bill, the Review-Journal has reported that Pierce had offered a proposal that would impose a tax on corporate profits.  Punishing the few remaining firms that are operating profitably is certainly not the way to encourage businesses in the Silver State to expand nor to entice foreign firms to relocate here.

The uncertain climate is causing businesses to be extremely cautious.  The old saying, “the greater the risk, the greater the reward”, works in reverse in business.  The greater the potential reward, the greater the risk businesses are willing to take.  Reducing the rewards for success by imposing additional taxes will make them even more risk-averse and even less eager to expand and hire than they already are.  This hesitation will likely continue even when the economy begins to pick up, which will slow any future recovery.

Pierce’s belief that this tax will reduce the state’s budget gap is also misguided.  For a lesson on the effectiveness of a broad-based business tax in preventing budget shortfalls we have to look no further than our neighbor to the west.  California is the tax junky’s utopia, assessing virtually every levy known to man, including an 8.84% corporate income tax.

Yet this has not saved the Golden State from massive budget problems.  California’s budget gap is projected to be as high as $28 billion and the state may have to begin issuing IOU’s to creditors later this year, just as it did two years ago.

In addition, corporate income taxes are one of the most volatile of all taxes.  During boom times, corporate profits soar and tax collections follow.  During downturns, corporate profits plummet and corporate income tax collections nose-dive.  This exacerbates the boom-and-bust spending cycles we already suffer from, in which lawmakers splurge to consume every dollar when funds are rushing in but are left with huge shortfalls when the economy slows and the flow is reduced to a trickle.

It is not as though Nevadans are not taxed already.  The Tax Policy Center, a project of the left-of-center Urban Institute and Brookings Institution, calculated that Nevada is right about in the middle (24^th) of all the states in terms of combined state and local tax collections.

Economic development and job creation must be the top priorities of this session of the Legislature.  Increasing the burden on businesses by imposing a broad-based business tax is not going to help the state accomplish these goals.  Nor is it a solution to closing the budget gap.  It’s only going to increase the burden on businesses and make our boom-and-bust spending cycles even worse.

(Michael Chamberlain is Executive Director of Nevada Business Coalition.)