(Ron Knecht) – The second Controller’s Monthly Report is now on the state website (www.controller.nv.gov). It addresses state revenues, while the first one reviewed state spending. In sum, its findings are:
Nevada state revenues include taxes, federal and other grants and contracts, plus charges for services that have amply served the public interest. Both total tax revenues and charges for services have increased slightly relative to Nevada’s economy and the incomes of Nevada families and businesses since 2008. Total state revenues have increased at roughly the same rate as state spending, and both spending and taxes have grown significantly faster than our economy, proving again that we have a spending problem, not a revenue deficit.
Every cent taken in taxes is an act of destruction of human and social well-being; so, public spending items should not be adopted unless they clearly provide benefits exceeding the damage done by taxes required to support them. The essence of sound fiscal policy is to deploy only the least destructive tax methods and most beneficial spending measures, and to find the taxing/spending balance point that maximizes net social benefits and public wellbeing.
All taxes are “unfair” because they can’t be charged according to the social costs that people cause, nor the benefits they receive. Fairness being illusory, in taxation and other public policy, we should seek to maximize economic growth and the human well-being that growth fosters. “Ability to pay” criteria, which have a superficial ring of fairness, and “redistribution” policies are particularly destructive to the broad public interest in growth. And claims that taxing one person to subsidize another involves “compassion” are false.
The real tax fairness issue is that public spending’s beneficiaries — public employees and contractors, plus those receiving public payments — have an unfair political advantage over taxpayers and the public, an advantage that produces excessive taxing/spending levels.
So, consider the recent fortunes of taxpayers and public employees. In the last six years, Nevada taxpayers’ average incomes declined by nearly 8% (from $39,079 in 2008 to $36,039 in 2010) before rebounding slowly back to prior levels ($39,173 in 2014). State employees took 4.6 percent cuts via furloughs for a couple of years, followed by a combination of furloughs and actual pay reductions still totaling roughly 4.6 percent. At present, they still must take furloughs equal to cuts of about 2.3 percent.
So, state employees, in general, have borne roughly the same burden from our economic troubles as have taxpayers. Considering the total package —pay, benefits and job security —state employees in Nevada essentially get total compensation at market levels. Local government employees, on the other hand, have taken fewer, if any, pay cuts and many have continued to get increases. In Clark and Washoe counties, their total compensation levels are much higher than market levels prevailing in the private sector.
The accumulated and ever-increasing over-reach of government is greatly responsible for the slow economic growth of recent years and the prospects of the same in the future. So, voters, taxpayers, Nevada state employees and the broad public interest are victims of government excess, while local public employees are to some extent beneficiaries.
All these considerations reinforce the conclusions of Controller’s Monthly Report #1 that to leave our children a better future, we must stop the growth relative to the economy and to Nevadans’ incomes of public spending that drives taxes. We must especially avoid mistakes such as adopting versions of the business margins tax defeated 4-1 by voters last November. We must restructure fiscal processes for real budget constraints and effective cost management, emphasize no and low-cost reforms in K-12 education, and end public employee collective bargaining and prevailing wage rules.
Ron Knecht is Nevada State Controller.