With no personal or corporate income tax in place, Nevada has long been viewed as a haven for low taxes. In 2009, residents were taxed at 7.5 percent of their earnings. Only Alaska, at 6.3 percent, had a lower rate.
Business advocates champion this fact and many consider it to be one of the biggest upsides of living and working here. It’s not a bad selling point, either.
So much so, perhaps, that Gov. Brian Sandoval has pledged not to raise taxes to help balance the multi-billion dollar deficit faced by lawmakers.
But there is another side to this story that might make it difficult for Sandoval to keep his campaign promise.
The low tax rate equates with lower tax revenues and, therefore, less money in state coffers. Sales, property and gaming tax revenues have declined sharply in Nevada since the recession hit in 2007. Across the nation, tax revenue fell by more than $14 billion in all states combined in 2010.
Because Nevada has the largest deficit of any state in the country as a percentage of its overall budget, some lawmakers have said a new tax structure must be created to make the state fiscally viable. Legislators in Carson City are currently working to balance a budget whose deficits are running at better than 50 percent of proposed expenditures.
Democrats have indicated they are developing a plan that would create some tax increases and new revenues in order to reduce hundreds of millions of dollars in proposed cuts to K-12 and higher education.
“Our state budget is clearly dependent on others, due to taxes paid by tourists via gaming and sales, so it definitely results in our residents being taxed lower than in other states,” Assemblywoman Debbie Smith, D-Sparks, said in an email statement. “You’ve already started hearing a lot in legislative committees about the tax structure and those discussions will continue.”
Republicans, meanwhile, have said they support Sandoval’s pledge.
“Raising taxes is the wrong thing to do” in this economy, said Sen. Greg Brower, R-Washoe County.
Brower also said the governor’s budget is “not anybody’s idea of a perfect budget,” but that it would reduce spending to 2007 levels, a necessary construct given record deficits.
The debate, it seems, continues to boil down to whether spending cuts or tax hikes will win the day. Having a little bit of both continues to be a tough sell. But doing so would spell victory for state Democrats.