Econ professor: Spending cuts are not the solution to Nevada’s ills
February 10, 2010
Gov. Gibbons says that like any family we all must live within our means. How can you live within your means if your means are in free fall?
A breadwinner who has lost his or her job will cut frills, but what parent would tell their kids, hey, we can’t afford to feed you anymore? You would use your savings until you could find a new job, or borrow what you could, and you would look for new sources of income.
Education is not a frill for Nevada. We have the smallest state government in the country, the fewest number of public employees, among the lowest high school graduation rates, and the fewest kids in the country who go on to earn a two- or four-year degree.
Gaming has been falling as a share of our economy for decades. Our sales taxes focus on durable goods, which people aren’t buying, and we exempt many goods and most services. Our mining industry pays less than 2 percent of its proceeds for what it removes, much less than it would in any other state.
We are one of the few states in the country without a corporate income tax, but we are still rated as a poor place for business because we lack an educated work force.
Raising taxes in a deep recession is a bad idea, but cutting spending is an even worse idea. Recent estimates have calculated that tax increases to cover the projected deficit would cost the state almost $500 million in gross domestic product (GDP), but spending cuts would cost the state more than $1 billion. This would result in another 8,000 unemployed in the private sector, once you take everything into account, on top of those jobs lost in the public sector.
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Our general fund has already dropped to about 2.2 percent of our state GDP, and we are now told to cut it even more, to fill a revenue shortfall that works out to about $13 per person, per month. Taxes to fill this hole would not really be a burden on the economy, and borrowing to fill it would not be a burden on the future.
Nevada has been hardest hit in this depression because our state economy was much more dependent on gaming and construction than any other state, and these sectors suffered most. But total personal income in Nevada fell only 6 percent from peak to trough, and actually rose slightly in the second and third quarters. State revenues have fallen much, much more than that, because our tax revenues are even less diversified than our economy.
We need to get through this biennium without damage to education that will be hard to undo. We should cut where it won’t do too much harm, borrow what we can, and tax if we must.
We must then come up with the political will to create a more stable tax base once this recession ends, with low rates but a broad base, so we don’t always remain at the bottom of every measure.
• Elliott Parker, Ph.D., is a professor of economics at the University of Nevada, Reno.