The only certainties in life are debt and taxes. Considering them together can reduce both. Taxes are a price on public services, and people are unwilling to pay for services that do not deliver good roads and schools.
Compared to Chicago, Nevada receives favorable evaluations for its tax policies. The Tax Foundation ranks its business tax climate as the seventh best in the country, largely due to the absence of corporate income tax. However, there are concerns about the state’s financial health. State and local tax collections amount to $5,080 per person, less than three-fifths of public debt. The state pension fund is particularly troubling, with assets covering only three-fourths of its liabilities.
Taxes in Nevada may need to increase to address debt issues. Property taxes on homes are already high despite low rates because of high property values, according to the Lincoln Institute of Land Policy. Business taxes might rise instead since home property taxes are high and there is resistance against individual income tax—Nevada being one of seven states without such a tax.
The state’s sales tax rate is the thirteenth highest nationally, making further increases unlikely without losing sales to neighboring low-tax states like Idaho and Utah. Corporate taxes appear as a likely candidate for an increase due to relatively low commercial and industrial property taxes compared to other states.
An increase in business taxes could affect economic growth by raising production costs unless it finances improvements beneficial to businesses or if firms can pass costs onto consumers without losing sales—a rare scenario. For instance, prescription medicine demand remains stable regardless of price hikes because insurers cover costs.
Business output might remain unaffected by certain types of taxes like land taxes which do not influence land supply but could discourage construction due to associated building taxes.
Nevada's main business tax on gross receipts affects revenues rather than profits, posing significant challenges especially for small firms and startups due to higher effective taxation compared to corporate income tax.
Moreover, Nevada's turnover tax varies significantly across industries from 0.051% on mining to 0.331% on rail transportation, leading to potential political maneuvering and discouraging optimal production levels which can also impact job creation negatively.
Tax cuts aimed at attracting businesses have historically shown limited effectiveness as competing states often respond with similar cuts, negating any competitive advantage while reducing funds available for essential infrastructure improvements.
Recent studies suggest that while localized market power might allow some firms temporary profit increases from tax cuts, broader economic benefits remain limited with much of the benefit accruing to firm owners rather than workers who would spend more locally stimulating growth.
Sales tax holidays could potentially boost demand but face competition from neighboring states offering similar incentives. Nevada uniquely offers these holidays within the Far West region but their complexity reduces effectiveness as noted by the Tax Foundation.
High-value goods should be taxed appropriately reflecting their service benefits like gasoline taxes funding road repairs while avoiding excessive taxation on price-sensitive goods which can deter consumption altogether.
Learning from Chicago’s experience where high debt has led to substantial budget allocations towards pensions and interest payments resulting in high residential and commercial property taxes driving residents away provides valuable insights for Nevada policymakers aiming for sustainable fiscal strategies without stunting economic growth.
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