New centrist think tank out with paper on margin tax, finds revenue estimates exaggerated and more

The Guinn Center for Policy Priorities, whose goal is to be a moderate voice of analysis amid the usual political hysteria, has published its inaugural effort on the most incendiary political topic of the moment: The margin tax.

The center, named for the late governor who was known for trying to be a voice of reason on many issues, has prepared a detailed and generally dispassionate document explaining what the tax is and what it isn't. It is attached here.

But one conclusion -- that revenue estimates have been vastly exaggerated -- will be fodder for the campaign:

The sponsors of The Education Initiative estimate that the margin tax would generate $800 million annually before reducing revenue by the credit for MBT or MBT-FI paid.19 Limited data is available to estimate the revenue from the tax and the Fiscal Division of the Nevada Legislative Counsel Bureau indicates that it is unable to estimate the revenue.

Our analysis, however, suggests that the $800 million gross revenue estimate may be overstated based on current data from the Nevada Department of Employment, Training and Rehabilitation and the Nevada Department of Taxation, and data from the United States 2007 Economic Census.21 There would also be a significant revenue reduction from the MBT and MBT-FI tax credit because most of the payroll in the state is paid by businesses that would be subject to the margin tax. We estimate that the credit would be approximately 90 percent of annual MBT tax revenue and 72 percent of annual MBT-FI tax revenue. The State revenue projections for 2013-2014 are $359.7 million for the MBT and $23.2 million for MBT-FI. Therefore, if the margin tax were to generate $800 million, as estimated by proponents, the revenue would be reduced by a credit of approximately $340 million, leaving net tax revenue increase of $460 million.

More of this will be used as underpinning for spin, no matter what the think tank's intent, thanks to cherry-pickers on both sides. (Welcome to my world!)

For instance:

12. Will The Education Initiative result in loss of jobs?

Opponents of The Education Initiative argue that businesses will reduce jobs or leave the State due to the cost of the tax. Proponents argue that the increased funding for education will lead to long-term economic growth. Employment data reveals that jobs can either increase or decrease following a tax increase. For example, Nevada first implemented the MBT and MBT-FI in October 2003, during a time of economic growth. Jobs continued growing until June 2007, when Nevada began an economic downturn.14 To raise more tax revenue during the economic downturn, Nevada increased the MBT tax rate in July 2009. Employment was falling at the time the tax was increased and continued to decline through September 2010.14

In Texas, the new margin tax applied to business revenue beginning on January 1, 2007.15 It was implemented as part of a comprehensive package that reduced property taxes and increased business taxes in response to school funding litigation.16 Texas was experiencing job growth during this time. Although the national recession officially began in December 2007, job growth continued in Texas until September 2008.14 Here we note that the Texas margin tax rate was less than the Nevada margin tax when it was first implemented. The Texas tax rates were 0.5 percent for wholesale and retail businesses, 0.575 percent for entities with $10 million or less in total revenue, and 1 percent for other businesses.15 Recent legislation has reduced these rates for 2014.

Research on the job impact of tax changes is mixed. A review of research by the Center for Budget and Policy Priorities found a lack of consensus on the impact of state tax cuts on economic growth.17 On the other hand, two studies analyzed the impact of eliminating the Texas Franchise Tax: one study estimated a gain of 40,000 jobs and the other estimated a gain of 16,000 jobs.

The center also points out that despite claims this will only be used to fund education, "There is precedent for the Nevada Legislature using funds intended to supplement education to backfill budgetary shortfalls." Indeed.

A lot of work went into this, and there also is an excellent chart showing the impact on various businesses.