Response to Jim Schnieder’s Way to Welcome 2021

Jim Schnieder of Sparks writes occasional opinion columns in the Reno Gazette Journal.  I called him to discuss his recent opus, which offered three ways for Nevada to welcome 2021.  After a pleasant, constructive conversation, here’s my rebuttal.

Schnieder’s first recommendation is that we, “[f]ormulate and apply the least harmful taxes.”  My interest in this subject began in 1989 when I took the public finance and taxation courses in Stanford’s economics department while in graduate school.  For over 30 years, I’ve kept up with empirical academic literature on this subject, used it in my public service and written about it.

His concern is that state and local governments need money – more money now due to the Corona virus and related lockdowns – for education, law enforcement, public health agencies and municipal transportation.  He adds, “There needs to be a mindset that when needed, equitably apportioned taxes are good.”

His proposal raises two separate points.  First, are new taxes needed and appropriate now?  Second, if they were, what are the least harmful taxes?

There’s no doubt the virus and especially the lockdowns have increased public spending needs relative to what they were a year ago.  However, there are offsetting factors, and my conclusion is now is exactly the time not to increase taxes.

Schnieder is candid that he has not weighed the damage the virus and lockdowns have caused to Nevada families and businesses, plus the further damage tax increases would add, against the good new public revenues could do.  The damage so far has been by far the worst hit to our families and businesses since the Great Depression of the 1930s.

Following the Great Recession of 2008-09, even Brian Sandoval running for governor in 2010 agreed the hit they suffered then made the case against new taxes at that time.  Things are much worse now, and even if one thought our overall tax levels are not high enough – a view with which I greatly disagree – now would not be the time.

Here’s the key point.  As discussed at length in the four Controller’s Annual Reports I authored for 2015-18, “The size, scope and reach of American government – including spending, taxing borrowing, statutory mandates, regulation, monetary and credit-allocation policy, and other intervention – long ago exceeded levels that promote the public interest in maximum economic growth and fairness.”

I added, “These excesses at federal, state and local levels have increasingly slowed growth and diminished fairness and will continue to do so unless they are reined in.”

In assessing the optimal level of public spending, I relied not only on my long familiarity with the subject but also a confirming review of the literature by some scholars at the University of Nevada, Reno.  The optimal total tax burden on our economy is 17 percent to 26 percent, but the actual level has now passed 40 percent and continues to rise.

Instead of increasing taxes and borrowing for more public spending, we should be realizing economies in total spending like those regularly achieved by the private sector, and thereby bringing down public spending and borrowing relative to our economy.

In the 21^st Century, Nevada’s real state spending on health and human services has skyrocketed (aided greatly by federal grants) and that for K-12 has also risen hugely.  All other state spending and the real per-person incomes of families and businesses have fallen significantly.

Also, the crushing burden of lockdowns has fallen heaviest on low-income folks.  Which brings up his concern for the least fortunate among us, where he advocates progressive taxes as a solution.

First, his view seems to overlook that government has long made huge income transfers to the poor, in addition to subsidizing their health care, schooling, diets, etc.  And it has already greatly increased these benefits in response to the virus and lockdowns.  People still cry out in need, but the fact is America has always responded generously and even more so in 2020.

Real fairness consists in lowering the overall tax and other public sector burdens to let productive folks keep the fruits of their labor, investment, creativity and productivity – and thereby grow the economy for the benefit of all.

Government growth exacerbates the problem; it’s not the solution.