You Can't Tax Your Way To Prosperity

In the midst of the worst economy in decades, with spending down and unemployment up, the Nevada Legislature made it more expensive to buy things and employ people. Not surprisingly, businesses have responded by cutting back even further.

A recent poll commissioned by the Review-Journal found little support among ailing businesses for higher taxes the Legislature passed in the spring. They say they're beginning to raise prices and cut work forces to handle the new levies.

[...]

A third of all respondents said they have tweaked operations to accommodate the new taxes and fees. Among that group, 36 percent have raised their products' prices, 18 percent let workers go and 12 percent implemented a hiring freeze.

The legislature attempted to insulate small businesses from the impact of the tax increases but, predictably, that approach backfired. In many ways the fortunes of small businesses are dependent upon the success of larger businesses. For instance, many small companies are suppliers to larger firms so when the larger companies are forced to cut back it has a negative impact on their smaller suppliers.

Businesses with less than $500,000 a year in sales have especially felt the hiring crunch, with 22 percent terminating workers and 17 percent stopping hiring.

Businesses that raised prices to account for the new taxes did so by 15 percent on average. Those that reduced staff did so by 25 percent. Companies that reduced payroll also did so by 25 percent on average. Those adjustments might not be enough, with 64 percent of poll participants reporting they would need to take additional action in the future.

But the legislature had something more important to worry about than the private economy - growing the government.

State Sen. Steven Horsford, D-Las Vegas, helped steer the budget process that resulted in the new taxes. Horsford said he understands the difficult economic times Nevadans are experiencing, but the state's budget shortfall -- its largest ever -- demanded action.

The Legislature responded with a plan designed to balance the interests of consumers and businesses, and to ensure neither group felt unequal burdens, Horsford said.

Everyone should share the burdens equally - everyone except the government, that is. Even with the recession and drop in projected revenues, the legislature managed to increase spending from the previous year. As one survey respondent expressed,

"I think everybody should pay some taxes. I understand you can't have a civilized society unless you pay for certain things like roads, police and firefighters," [Ron] Rollwitz said. "My problem is, we keep getting hit with more and more taxes, and there's an awful lot of waste that's out there. My clients, they're trimming their budgets and I'm trimming mine, but the government never seems to have to trim their budget. They just spend more and more."

As a result of the economic downturn, revenues to the state have fallen. The legislature responded by increasing taxes, which increased the burden on consumers and businesses, further exacerbating the downturn.

As government demands more and more from the private sector it decreases the ability of the private sector to provide products, services, jobs and tax revenue. The reaction of government is then to demand even more, thus further reducing the ability of the private sector to provide. This trend cannot continue forever and, hopefully, some sanity takes hold in Carson City (and Washington) before there are catastrophic results.