If some Nevada lawmakers have their way, the sun may never set on the $650 million tax increase that was supposed to be temporary.
The tax increase, originally passed in 2009 to help the budget through the worst of the recession, was set to expire or “sunset,” but it has not done so. Now, some legislators are saying some of the increases should be permanent.
The Legislature’s tax committees plan to meet at 1 p.m. today to begin that discussion.
“Instead of just kicking something down the road two more years, this is the time to make the decision on those,” said Senate Majority Leader Mo Denis, D-Las Vegas. “Are we going to keep doing them, or are we going to stop doing them?”
The taxes that were supposed to expire include the sales tax, car registration tax, business license fee, mining tax and modified business tax, which is a payroll tax.
Passed despite a veto from former Gov. Jim Gibbons in 2009, the taxes were supposed to sunset in 2011. But two years ago, faced with continuing budget difficulties, the Legislature and Gov. Brian Sandoval extended the taxes through this year. Now, Sandoval is proposing extending the taxes another two years, setting up another political fight about state spending in 2015.
Democrats already fought hard to extend the taxes in 2011, overcoming Republican opposition.
To avoid playing defense every legislative session, some Democrats have said that some of the taxes should be permanent, especially when they pay for services such as public education that have broad, bipartisan support.
To support the temporary taxes, Republicans typically ask for concessions from Democrats on conservative policy issues such as public employee retirement reform or collective bargaining rights.
“It shouldn't be a bargaining chip every session,” said Speaker Marilyn Kirkpatrick, D-North Las Vegas. “In the last two sessions, we've given up this to get the sunsets, and we've given up this to get the sunsets, and really, when do we grow up and be a state that we really want to be?”
Two years ago, Democrats essentially threw up their hands during the protracted debate over taxes. Then-Speaker John Oceguera said near the end of that legislative session that the extension was “the best we're going to do."
Making the taxes permanent would not mean taxes increase from the rates they are at now.
“Folks have already been paying this for four years, and they're pretty already accustomed to it,” Kirkpatrick said.
Eliminating the sunsets, however, would mean Nevadans would not see a tax cut.
Republicans say the sunset taxes should end eventually.
But letting the taxes expire this legislative session or the next would blast a hole in the budget unless the economy recovers enough to provide more than $1 billion in new revenue, a very optimistic projection.
“The idea that we’re going to grow out of the sunsets is suspect,” said Jeremy Aguero, an analyst with Applied Analysis.
The sunsets — a package of tax increases and diversions from other funds that brings in $1.2 billion for the biennium — have smoothed over budget holes during the economic downturn.
Aguero said the sunset package accounts for about 10 percent of the state’s general fund, and replacing that purely with economic growth is “problematic.”
But having a public list of which tax increases they would let expire when revenues grow is not necessarily a bad thing, he said.
Sandoval has said the economy has not recovered enough to let all of the tax increases and diversions sunset. He has, however, proposed redirecting $64 million back to other state accounts that used to fund things such as highway maintenance and help for problem gambling.
"The governor believes that we have turned a corner, but not the corner," said Mary Sarah Kinner, the governor's communications director. "Regarding any discussion on tax reform, the governor has said he’s willing to listen to a discussion, but since a tax proposal doesn’t exist at this time, there’s nothing to comment on."
Senate Minority Leader Michael Roberson, R-Henderson, said he’d like to see the increase in the vehicle registration taxes sunset.
On Monday, he proposed replacing them with a sales tax on services, a more permanent source of revenue.
“If we're going to keep revenues where they are now, you're going to have to raise somewhere else, so that's where you start to talk about revenue-neutral tax reform,” Roberson said.
Hanging over the tax discussion is a margins-tax ballot initiative that the state teachers union hopes to pass either in the Legislature or on the ballot in 2014.
That uncertainty could be enough to persuade legislators to defer major tax structure changes until the 2015 session, said Assembly Minority Leader Pat Hickey, R-Reno.
“Going forward, frankly, the teachers' tax initiative is casting a shadow over any serious discussion of taxes because it could trump next session anything that is done this session,” Hickey said.
Repealing the sunset taxes and replacing them with solid revenue sources would make the state less reliant on budget gimmicks and provide predictability for businesses and state policymakers.
Conversely, leaving the sunsets in the state’s tax and revenue structure means that $1.2 billion is in limbo every two years when the Legislature meets.
“You create an element of uncertainty for both the people who pay the taxes and those who receive them,” said Carole Villardo, with the Nevada Taxpayers Association.
The alternate scenario to create more stability involves letting the sunsets expire and slicing $1.2 billion in services out of the budget.