Don’t Put Holes in a Bucket: Nevada Attempts to Improve Index Score the Wrong Way

February 13, 2012

On February 7th, Nevada Governor Brian Sandoval announced a new tax incentives plan that he hopes will “advance targeted sectors and opportunities in the region.” In his remarks Governor Sandoval claimed, “[Nevada has] one of the most attractive business climates in the country, it is up to us to capitalize on that fact.”

Specifically, the Governor’s Office of Economic Development will undertake a “study of the competitiveness and effectiveness of Nevada’s tax incentives and abatements… In addition to evaluating the existing system, the study will consider the concept of creating regional innovation districts and the advisability of developing incentives for energy rates, research and development, and the production of feature films and television… With a nationwide comparison, this study will enable Nevada lawmakers to develop effective legislation to mobilize the specific clusters designated as Nevada’s emerging industries.”

While the plan boasts that Nevada ranks third in our most recent addition of the State Business Tax Climate Index, the tax policy changes supported by Governor Sandoval would only lower Nevada’s tax competitiveness. As more loopholes are added to the tax structure, the principles of simplicity, transparency, and neutrality would be broken. These concepts are the foundations of the State Business Tax Climate Index, and the cornerstone of a good tax policy.

Some parts of the proposal are even clear violations of some of our most followed policy topics. As we have shown on numerous occasions, film tax credits, a hefty part of the governor’s proposal, are ineffective at providing incentives to do business in a state, especially as neighboring states adopt similar credits and deductions. While the governor contends that these development programs will create jobs, our analysis shows that they generally create temporary employment, because the film business is mobile in nature. Similar to Governor Sandoval’s plan, in Massachusetts the development of “Innovation Districts” has required using millions of dollars of tax incentives to lure companies into the area to develop, further breaking the principle of neutrality.

Through damaging the tax competitiveness of Nevada, the Governor’s aim of creating a vibrant economy for future generations becomes endangered, and instead just favors well-connected businesses over others. The sound approach would be to eliminate deductions and lower rates overall. Currently Nevada’s tax base is relatively well-constructed, something that Governor Sandoval’s proposals will jeopardize.

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