Remarks to the Nevada Taxpayers Association Annual Dinner (Do-Over)

February 26, 2015

Nevada appreciates the razzle-dazzle.

After a week of meetings to promote our new book on Nevada tax reform, I was invited to address the annual dinner of the Nevada Taxpayers Association in Carson City yesterday. For a variety of fairly dull reasons, at the last minute I swapped out my planned talk with a talk about the book’s findings, which some in the crowd took to Twitter to say was itself fairly dull.

To be clear, this was a tax association event with a think tank lawyer speaking to it, attended by people who voluntarily spend half their lives in Carson City listening to speeches. Maybe it was just a “make fun of the guy from DC” thing which I can’t really blame. I also must say that I did have a number of people tell me after the talk that I did a good job, and even had some defenders on Twitter (I scored well with the key demographic of CPAs who chair Taxation Committees, for instance, even if I flunked others.)

But maybe I misjudged the inflated expectations that my Nevada friends had for me. I know tax isn’t service animals, square dancing, or Sandoval, but the state that has Donnie and Marie performing five nights a week is no ordinary state, and I should have known to step up my game. Therefore, I ask their indulgence for a do-over.

Good evening, everyone, it’s a pleasure to be here with you tonight. My name is Joe Henchman, which many of you whom we’ve met with have been amused about. It’s an old family name, I assure you, and like most last names reflects the family profession back in the day. My job today, a policy analyst Henchman, is not very scary, though. By contrast, my mother is a nurse: the patients sometimes get a little worried when they hear Nurse Henchman is going to take care of them.

My mother, like all mothers, is very proud of her son, even if she doesn’t quite understand what I do for a living. As that introduction made opaque, I’m a lawyer surrounded by economists at a DC think tank, and our job is to research and analyze state tax trends and state tax structures from the perspective of economically sound tax policy. Even my mother isn’t very excited by that description, so when her friends ask what I do, she tells them that I am on TV a lot. That way, her friends think I’m something like a cast member on CSI when in reality, the most glamorous TV show I can hope to be on is Ralston’s new show.

Now I’m the kind of person who asks “why” a lot. It makes me well-suited for this job. This may surprise you but no one grows up saying they want to be a tax lawyer. Or a tax lobbyist for that matter. No, I’m one of those people that walked into my tax class in law school and was mesmerized. Just as firefighters need to be just crazy enough to run into burning buildings rather than away from them, I run toward broken tax systems.

And so here I am. Last year, the Tax Foundation state policy team flew about 200,000 miles to talk state tax reform with legislators and officials in states like California, New York, Rhode Island, Illinois, and other places with tax and budget policies that Steve Sebelius admires deeply.

Our book, which I must thank the Las Vegas Metro Chamber for commissioning, has 84 pages of text, charts, and colorful pictures on what outsiders like us saw about Nevada’s tax system. (If you would like a print book, Paul at the Chamber has built a giant fort in his motel room out of boxes of them, so feel free to reach out to him.) And if I could ask Senator Atkinson and Assemblyman Silberkraus to please remove the forks from their eyes, I’d like to take a few brief moments to walk through four of the things we found.

First, sales tax. I’d like to ask all the paid lobbyists in the room to please stand. Everyone look around, get a good look. Thanks, you may sit down. Now, if I could ask all those individuals who have real businesses where they sell things to consumers to please stand. (Nope, Randy Brown, you can’t stand twice, sit back down please.) Everyone get a good look. Thank you, you may sit down.

Now I have a question for you all. How is it fair that no one in that first group collects sales tax while many of you in the second group do? We all know why that’s the case: a historical accident. Mississippi was the first state to adopt a sales tax in 1930, and they taxed goods but not services because that’s what the Mississippi economy in 1930 was. And everyone else, including your fine legislative predecessors here in Nevada, just copied what Mississippi did. So that’s how we have a lawyer like me not having to collect tax on anything, while a convenience store owner has to collect sales tax on everything they sell. I don’t think many people would consider that fair.

Expanding the sales tax to services will not be an easy task, I admit. A tax on lobbyists might not be the most popular idea I could pitch to this audience. And removing the sales tax on business inputs – you’re one of just 9 states that still taxes manufacturing machinery – doesn’t win too many supporters because the supporters aren’t here: the tax holds Nevada back from developing those sectors. But if the sales tax is going to remain a mainstay of Nevada’s tax system, it needs to be reformed to grow with the economy, and that growth is in services.

Second, the Live Entertainment Tax. Normally I wouldn’t stand behind the podium like this, but Assemblywoman Kirkpatrick warned me that if I pick up the microphone and walk around, then Carole has to charge you all LET on your tickets. Nobody wants that so I’m doing my best to make sure this speech is not entertaining at all so we don’t risk it. Maybe I can motivate you to get rid of those arbitrary and complicated LET rules by offering to bring jugglers and tigers and magicians next year if you do.

Third, the MBT. We’ve got a chart in the book about yearly MBT revenues and they are as steady and consistent as a Metro Chamber press release. An oasis of stability in a state tax system without a lot of stability. If you look at a similar chart for state corporate income taxes in other states, it looks like Hugh Jackson’s hand gestures: lots of volatility. The businesses we talked to say the MBT is simple and it doesn’t really hold back job creation, which is something businesses never say about any kind of tax. The only real flaw with the MBT are all the exemptions in it. Our book lays out options to broaden the MBT base and doing so could generate hundreds of millions of dollars a year on a revenue-positive basis. Or you could reduce the rate or other taxes if you wanted to keep it revenue-neutral.

Fourth, the property tax. We had to relearn property tax (thank you for the patient teaching, Carole!) because Nevada’s is so very different from every other state. You have cost of replacement instead of market value, which taxpayers don’t understand. The split roll property tax cap takes a page of equations to explain and has had some harmful effects because of the unintended ratchet effect. You’re the only state in the country with a depreciation factor in the property tax. There are obviously some winners under this tax system – the motel I’m staying in must be paying zero property tax because that place is fully depreciated – but most taxpayers lose out with a system that’s unfair, unpredictable, and probably unconstitutional.

The good news for you is that the pieces are all there and the solutions are realistic. I’ve walked around Carson for most of the last week and I keep hearing how this is a once-in-a-lifetime legislative session. In that vein, I want to thank Senator Roberson, Senator Ford, Assemblyman Armstrong, Assemblywoman Kirkpatrick, and the members of their committees for inviting us to discuss our findings. It’s clear to me that Nevada legislators are engaged, thoughtful, and serious about tackling some big issues this term. I also want to express deep thanks for all the time that many of you shared with us, and the hospitality we encountered in this wonderful state as we solicited that input.

It may be the right moment to stop kicking the can down the road every two years – picking an industry and hammering it to solve a short-term budget gap – and instead fundamentally restructure the tax code so that it grows with the economy today and in the future. With a simpler, more neutral, more transparent, and more stable tax system, Nevada can set itself for generations of growth. And maybe, in the year 2115, when Carole Vilardo gavels our great-grandchildren in for the 193th annual NTA dinner, let's have them celebrate the 100th anniversary of the legislative term that got it done right. Thank you.

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