Democrats Unveil Tax Plan, Republicans Remain Opposed To Revenue Hikes To Restore Cuts To Sandoval Budget

By Sean Whaley
CARSON CITY – Legislative Democrats unveiled the elements of their highly anticipated tax plan today, saying they will work every day until the end of the session to craft a proposal that restores many of the cuts in Gov. Brian Sandoval’s budget without choking off a nascent economic recovery.
“What we do this legislative session will decide the course of our state, not for the next two years, but for a generation,” Assembly Speaker John Oceguera said in his introductory remarks at a town hall event at Western Nevada College. “Everyone here I think agrees that there has to be cuts to our budget, and major reforms, but there has to be a careful balance.”
Democrats still do not have Republican support for their tax proposal, however. GOP lawmaker support is critical to raising any tax or overriding a veto by Sandoval of a tax or fee increase.
Democrats said they briefed Sandoval and Republican lawmakers on their plan today, but received no commitment for support. Sandoval has been unwavering in his opposition to any tax increases to fund the budget, saying the state economy could stagnate with such an added financial burden.
Oceguera and Senate Majority Leader Steven Horsford, both D-Las Vegas, held a town hall on their tax plan, saying the state needs to restore $920 million in cuts to education and health and human services to keep important programs and services funded in the coming two years.
They said another $615 million in new revenue is needed to address “structural” problems with Sandoval’s two-year, $6.1 billion general fund budget, bringing the total new revenue required to $1.5 billion. The structural problems identified by Democrats are the use of one-time funds to balance the current budget, such as the proposal to use $247 million in school district bond reserve funds for school operating costs, which will not be available in the next budget cycle in 2013.
The plan is to extend the sunset on several tax increases approved by the 2009 Legislature to fund the current budget to generate $626 million of the total. This would include an extension of the higher modified business tax on payroll in excess of $250,000.
It also calls for a tax on services of 1 percent to 4 percent. The new tax would exclude some areas such as non-elective medical care, and would allow for the reduction of the sales tax rate by at least 1 percent over four years. It would generate an estimated $300 million.
Finally, Democrats are calling for a “margin tax” on business revenue not to exceed 1 percent and exempting the first $1 million in revenue. As part of this proposal, the current modified business tax on payroll would be phased out over a three-year period. The new tax would generate an estimated $315 million.
The balance of the $1.5 billion would come primarily from the increased revenues projected by the Economic Forum on Monday of about $303 million.
Oceguera said as part of the tax discussion, Democrats are also pushing reforms to public education to generate improved student performance, to the public employees’ retirement system, to collective bargaining and on other issues. If Republicans want to go further on these issues they need to offer specifics, and not call for complete elimination of such long-standing policies as public employee collective bargaining, he said.
Democrats are standing alone with their ambitious tax proposal so far, however.
Describing the meetings with Republican lawmakers, Oceguera said: “There was a lot of questions, it was very civil, there wasn’t any commitments made, but I thought we had a good open dialogue.”
In a formal response to the plan, Republican members of the state Senate said today: “Republican members remain gravely concerned that the proposed taxes, including a brand new tax specifically targeting business, will have a chilling effect on Nevada’s ability to emerge from the ongoing economic recession.”
Sandoval also provide a response to the plan: “We had a frank discussion about our differences of opinion concerning the impact of raising taxes, and I restated my belief that raising taxes in this economy would be a mistake. Nevada is just beginning to demonstrate signs of economic recovery and this proposal would bring job growth to a halt, at a time when we have proven that growing our way out of this crisis can address our budgetary needs. In the last three months, we have been able to restore nearly half a billion dollars to the state budget, including millions for public education.”
Horsford said the Democrat tax plan would help most small businesses by eliminating the payroll tax, which he said is a disincentive on employment and job creation.
“It may have been a good tax when we had an unemployment rate of 4 percent . . . but it is not a viable tax when we have unemployment at the rates that we have today,” he said. “The margin tax is fair, it is equitable, it is broad, it is stable, it is less volatile.”
The tax discussion has ramped up with only four weeks remaining in the 2011 session.
Audio clips:
Assembly Speaker John Oceguera says the state budget must be cut, and reforms are needed, but there has to be a balance:
050511Oceguera1 :22 a careful balance.”
Oceguera says GOP was briefed on plan but no commitments were offered:
050511IOceguera2 :16 information up front.”
Oceguera says Republicans need to offer specific policy reforms:
050511Oceguera3 :17 but no substance.”
Senate Majority Leader Steven Horsford says eliminating payroll tax would help most small businesses:
050511Horsford1 :21 jobs on line.”
Horsford says the margin tax is superior to payroll tax:
050511Horsford2 :22 is less volatile.”