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What should legislators do in the special session?

Ron Knecht

What should Nevada legislators do in their special session this week about state fiscal problems? They should follow the lead of Gov. Jim Gibbons by opposing tax increases, and also consider the proposal of Lt. Gov. Brian Krolicki to cash out Nevada’s income stream from tobacco sales.

Increasing taxes would diminish overall human wellbeing, and so it is contrary to the public interest.

All government activity inherently involves some destruction of human wellbeing by taking money, property or rights from people and businesses. For example, for someone to get a government subsidy or to sell goods or services to government, someone else has to pay a tax, and every dollar taken in taxes ” being taken via coercion ” is an act of destruction of human wellbeing. Also, for government to protect my rights to whatever, it has to limit others’ freedom of action in some ways.

By contrast, relations between people and businesses are mutually voluntary; private parties may not coerce each other. If a transaction or relationship does not benefit both parties, the party being shorted does not go on with it.

Of course, we need government, at least in order to have the rule of law on which private relations and human security rely. And there are some beneficial things government can do that exceed the destruction of human wellbeing inherent in raising the money and limiting the rights necessary to do them. Also, some private transactions create “negative externalities” by burdening parties not directly involved in them, and that justifies very limited government intervention.

However, on balance, the vast bulk of private transactions are in the public interest, while there are many things government can do that deliver more damage than good to human wellbeing. So, we do need government, but just as much we need to strictly limit it and thereby find the balance between the public and private spheres.

If we’ve learned anything from experience around the world throughout the last century, it’s that the private sector is the engine of economic growth. More particularly that economic freedom, including low tax and regulatory burdens plus protection of private property and rights of contract, are essential to increasing human wellbeing. There is research based on real-world experience that shows governments nearly everywhere have grown large and over-reaching.

There is no evidence that the current size of government in the U.S. ” one-third of our economy going into the public sector ” maximizes human wellbeing, but there is much evidence that it is too large. That reduces economic growth. The argument is between those who think the evidence shows our government’s current reach is vastly too great (and should be shrunk by about one-third) and those who think it’s only a bit too large (and could be shrunk by 10-25 percent).

Studies available show that the sum total of government in Nevada is about right, but the totals in most other states, especially California and the other so-called “progressive” states, is much too large. So, legislators and other public officials arguing to increase Nevada taxes thereby demonstrate that they either don’t know the fundamental facts about what they’re charged to do or that they don’t care about the public interest as much as they do about certain tax-eating special interests.

Tax-and-spenders argue that our present hard times have caused a downturn in state revenues that justifies increasing taxes, but that claim falters on two points. First, the reduced revenues government is facing in Nevada only mirror the hard times Nevada families and businesses are also currently experiencing ” so, tax increases at this time are a callous attack when people and their businesses are most vulnerable. When the economy shrinks, government should shrink proportionately, and that’s what’s happening in Nevada.

Second, the solutions the statists propose, especially personal and business income taxes, would make public revenues even more prone (not less) to wide cyclical fluctuations, and they would permanently increase the size of government relative to everything else. To see what damage their policies of personal and corporate income taxes and high government spending would wreak on Nevada, look at California; it already follows their prescription, and as a result has budget deficits proportionately two to three times greater than ours.

In short, Gov. Gibbons is right, being supported by real-world hard evidence about the public interest, and his opponents are wrong, having only demagoguery and special-interest power and money on their side. Considering the facts, it is ironic that they erroneously deride his no-tax-increase pledge as somehow simplistic or uncaring about the wellbeing of Nevadans, when that’s exactly what their views and actions are.

Lt. Gov. Krolicki’s proposal would shave off the top from state revenue streams in future business booms and use those dollars to partially fill the trough we’re in due to the worst downturn in many years. It would keep future legislators and governors from making the mistake they made in recent sessions by spending too much and saving too little in good times. It also lays off to private investors the variability of the tobacco revenue stream.

The statists who populate much of government, the media and academe have no real solutions, only empty rhetoric and self-serving lust for your tax dollars and rights. Their big-government policies have impoverished and oppressed billions of people everywhere for decades. To obscure the real effects of their policies, they spend a lot of time bashing our Governor and Lt. Governor, who are doing their jobs and serving the public interest.

Ron Knecht of Carson City is an economist, University Regent and former Assemblyman.