Nevada’s most important taxpayers deserve a rebate

Nevada’s tax structure makes its working class poorer.

In Nevada, the smaller your income, the higher the percentage of your income you pay in taxes. Nevadans with the lowest incomes pay an effective tax rate that is five times higher than that paid by the state’s wealthiest residents, according to one independent analysis. (There exists no official state analysis of tax burden distribution, because it would look bad and make some very important people uncomfortable.)

From a fairness standpoint, the state’s tax structure is upside down. 

Low-income people pay higher tax rates than wealthier people because Nevada relies extremely heavily on sales tax revenue to fund government services and programs. The largest single source of state government revenue is the regressive sales tax. The gaming tax is a distant second.

There are multiple ways to make the structure more fair, the most obvious being lowering the sales tax rate while shifting more of the burden of funding government to industries and higher income households though increased or new taxes.

But Nevada’s unfair tax structure is accompanied by a deliberately dysfunctional state legislative process, in which no tax can be created or increased unless approved by two-thirds of both legislative houses. Put another way, no tax can be raised or created unless the state’s most politically potent industries sign off on it.

Lowering a tax, by contrast, could be done with only a simple majority of legislators and a signature from the governor.

Lowering sales taxes would be a good start toward making Nevada’s tax structure more fair.

But while we wait … and wait … and wait … for that to maybe possibly happen someday, policymakers could also provide the state’s most important taxpayers with another form of much-deserved relief.

Something with a bit more oomph. 

Nevada is not one of them

More than half the states in the U.S. provide what are effectively tax rebates through an earned income tax credit (EITC) that families can receive in addition to the federal EITC. The credits in those states are calculated from and applied to individual state income tax filings.

Nevada doesn’t have a state income tax.

But neither does the state of Washington – the only state in the country without a state income tax that has created an EITC, or as it’s called in Washington state, the “Working Families Tax Credit.”

Instead of applying the credit to a state income tax return, it’s based on a resident’s federal tax return. Taxpayers have to apply for the credit, and if they meet the eligibility requirements, they are granted an annual lump sum rebate ranging from $300 to $1,200, depending on income and family size. For example, a single person with one child and earning less than $43,492 would be eligible for a $600 credit.

Washington enacted the program several years ago, but legislators didn’t fund it until 2021, and it didn’t go into effect until this year. The Washington State Department of Revenue estimates 400,000 individuals or families are eligible. As of last month, a little less than half that many had applied, and $103 million had been refunded to them.

Nearly 10% of people filing for the rebates earned eligibility for Washington’s tax credit not by filing federal tax returns with social security numbers, but with an individual tax identification number (ITIN). 

People file federal tax returns with ITINs when they don’t have a social security number, a group which includes undocumented immigrants. Who are in turn a group that pays a lot of taxes, especially in a state like Nevada that relies so heavily on sales tax revenue.

The federal enhanced Child Tax Credit program created by the American Rescue Plan Act provided annual credits of up to $3,600 per child aged 0 to 5, and $3,000 per child for those aged 6 to 17. The credits were available in the form of monthly payments through most of 2021. By the end of that year, more than $915 million had been made in payments to Nevada households, benefiting roughly 600,000 children.

Child poverty in the U.S. was cut in half by the program.

Since the inexcusable congressional failure to reauthorize the tax credit, that unprecedented progress has been obliterated, and child poverty has doubled. 

But the stunning success of the short-lived federal tax credit is why many states are now creating or expanding state-level EITC programs (though none of them come close to providing support comparable to the briefly expanded federal child tax credit).

As a fellow no-income-tax state, Nevada can learn a lot from the state of Washington’s tax credit program. But Nevada shouldn’t emulate the Washington model exactly. Ideally, both the eligibility requirements and the amount of the annual payments would be more generous.

The Casual Disregard State

When Nevada policymakers talk about the relationship between taxes and the economy, that discussion is almost exclusively confined to lightening the tax load on some industry or specific private sector player, in the promise of “economic development.”

The only recent Nevada initiative purporting to offer tax relief for working people was a $250 million gas tax holiday unsuccessfully floated by Gov. Joe Lombardo.

But the severe uncertainty of how much of the tax holiday benefit would go directly to petroleum companies, coupled with the certainty that most of what wouldn’t would be enjoyed by businesses and people of means who least need help, rendered the gas tax holiday more of a political stunt than a substantive policy proposal.

If Lombardo wanted to provide tangible anti-inflation relief for Nevada families, he should have advocated a $250 million tax rebate targeted to those Nevadans who pay a higher effective tax rate than any other individuals in the state. He should have cribbed from Olympia.

While touting his gas tax proposal, Lombardo of course never acknowledged the underlying unfairness of Nevada’s tax structure.  The very concept of lightening the tax load on the taxpayers responsible for the largest source of state tax revenue is taboo in polite Nevada society. 

The state’s decision-makers have demonstrated ad nauseam that they think “economy” is just another word for business. For them, the top “economic” priority of state government is and should be nurturing and cosseting business.

They’ve just as frequently demonstrated they believe the tax burden of working people is something that should be quietly collected, not debated or reformed. On those rare occasions when the subject is broached publicly, a common refrain is the intellectually bankrupt and lazy excuse that the tourists pay it.

Working people, in jobs that aren’t great and don’t pay well, are every bit as much a part of the Nevada economy as business is – not the imaginary economy of political rhetoric, but the real economy in which Nevada households are trying to get by, the very same economy that wouldn’t exist without those households.

The routine refusal to acknowledge how the state’s tax structure punishes the working class could be charitably called a policy blind spot or, less charitably, a policy choice.

In either case, if lawmakers continue to blithely ignore Nevada’s atrocious tax structure, they’ll continue to condone the impoverishment of the state’s most important taxpayers.