(Michael Chamberlain/Nevada Business Coalition) – This segment of an old Ronald Reagan quote perfectly describes the tax plan presented by the left-wing Progressive Leadership Alliance of Nevada (PLAN) yesterday.
They offer a proposal they claim will generate an additional $1 billion in revenue in the current budget cycle without having any negative effects on the economy, improving the plight of the state’s businesses, in fact. Word is it was delivered in an invisible chariot drawn over a rainbow by a team of unicorns.
How else can they increase the pool of money available to the government and immunize their members, many of whom are government unions and others who benefit from government confiscation of taxpayer funds, from the effects of the recession that has ravaged the private sector?
We actually found something to agree with them on. They propose getting rid of the Modified Business Tax, which is one of the most destructive taxes around. It kills jobs and suppresses wages.
Where we differ with respect to this is they want to replace it with a corporate income tax. This proposal actually verified one of the major objections we have to the corporate income tax, or any income tax. When revenues fail to keep up with the spending appetite of the political class, the first reaction of these big spenders is to increase these taxes by raising rates and/or lowering thresholds. In fact, this document is evidence of precisely this.
Recently ProgressNow Nevada, also a member of PLAN, presented an online petition requesting that Nevada adopt a corporate income tax on net income above $500,000. Assemblywoman Peggy Pierce sponsored AB336, instituting a corporate income tax also with the first $500,000 exempted. Three of the four corporate income tax scenarios presented in the PLAN plan contain thresholds lower than $500,000.
So advocates of the corporate income tax have dropped the threshold before their proposal has even been adopted. But they’ll never drop it again after it’s already in place, will they? Of course they won’t. Anyone who believes that probably also believes the Nigerian guy whose father left $20 million in an American bank and is willing to split the money if they’ll help him get it.
In addition, corporate income taxes are among the most volatile of all taxes, which will only make the boom-and-bust cycles of revenue collections even worse. During good times, corporate profits soar and tax revenue pours in, and big government legislators respond by creating new programs and expanding existing ones to shuffle the additional funds out the door as fast as they come in. When the economy falters, corporate profits plummet leaving huge budget shortfalls.
That’s not all that’s objectionable about this proposal. The plan calls for imposing a sales tax on services. The revenue estimate from this sales tax is based upon a static analysis that doesn’t take into account that taxes change behavior. They simply assume that the same amount of activity will occur with or without the tax and take a percentage of that total as the amount of tax collected.
This tax will have to be absorbed either by the consumer, who will have less money to spend on other products and services, or the business, which will leave it with less money to spend on other things (wages, purchases of products and services) or both. Imposing a tax on services will reduce the amount of economic activity engaged in by consumers and businesses. The economic multiplier effect of spending works in reverse as well.
Higher taxes reduce the amount of economic activity. The static analysis used by PLAN does not account for this. This tax will have a dampening effect on the economy and generate much less revenue for the state of Nevada than projected by this plan.
Democrats are unveiling their own plan today, which is expected to include some of the same ideas as the PLAN proposal but, in some ways, may be even worse.
The advocates for big government, as always, have their eyes on your wallet.
(Michael Chamberlain is Executive Director of Nevada Business Coalition.)