Bo Statham: Margin tax isn’t the answer for our education system

The Education Initiative, better known as the Gross Margin Tax proposal, will be on the 2014 ballot for voter consideration. Supported passionately by those who believe Nevada’s public school system requires higher funding, the tax would raise an estimated $800 million a year dedicated to that purpose. The business community vigorously opposes the proposed tax.

This column will not please either supporters or opponents. Instead, it focuses on the need to restructure Nevada’s tax system to more equitably provide required funding for all public needs.

It seems beyond question that K-12 education is in need of greater financial resources, but a gross margin tax on a segment of the business sector would be neither fair nor a good component of Nevada fiscal policy.

Sponsored by the Education Initiative Political Action Committee, formed primarily by teachers and school groups, the margin tax would be a new levy of 2 percent on businesses with annual incomes of at least $1 million. Gaming revenue is exempt. A company could deduct from total income certain expenses or alternatively chose to deduct 30 percent of total income, whichever results in a lower tax.

It is important to understand this would not be an income tax, which is based on a company’s profit. The proposed margin tax would be assessed even if a company made no profit.

The Nevada Policy Research Institute described the margin tax as “one of the most hare-brained schemes ever to come before state lawmakers.” The independent Tax Foundation calls gross-receipts taxes “distortive and destructive.”

Underlying opposition to the tax is the fear it will make Nevada less competitive. But let’s look at the facts.

The Tax Foundation ranks Nevada, one of nine states without corporate and personal income tax, third overall in its 2014 Business Tax Climate index but 36th in Best States for Business and Careers. Forbes concludes, “While Nevada scores well in business costs, it does not score well in factors such as labor supply, economic climate, and quality of life.” CNBC’s 2013 business ratings found Nevada ranked “well in business friendliness and cost of living, but did not rank well in areas such as the economy and education.”

A fair interpretation of these ratings is that Nevada’s fiscal policy results in a very attractive tax burden for businesses and residents but a poor environment for economic development. The state fails to foster skilled labor, education, economic climate and quality of life that are valued by business.

According to a 2011 U.S. Census Bureau report, Nevada’s state revenue per capita of $3,848 was the second-lowest of all states, and state spending per capita of $4,848 was the fourth-lowest. This “low taxes-low public funding” tradition reflects an anti-government mentality that does not serve Nevada well.

Increased financial support is one vital component of improving public education in Nevada, but a gross margin tax is not the way to fund it. The proposed tax would only add to an already-failed fiscal policy that is misguided, inequitable and regressive.

Bo Statham is a retired lawyer, congressional aide and businessman. He lives in Gardnerville and can be reached at bostatham@me.com.