April 10, 2023

Testimony of ITEP’s Marco Guzman Before the Nevada Assembly Committee on Revenue

ITEP Work in Action

For a video of Marco’s testimony, click here.

Thank you, Assemblywoman Anderson, and thank you chairman and members of the Assembly for the opportunity to speak on the topic of Nevada’s state tax system. My name is Marco Guzman, and I am a Senior State Policy Analyst with the Institute on Taxation and Economic Policy (or ITEP).

We’re a non-profit, non-partisan tax policy organization, and we conduct analyses and provide data-driven recommendations on how to shape equitable and sustainable tax systems.

In this presentation I will give an overview of what Nevada’s tax system looks like, it’s impact on its residents, and how wealth taxes can help add much-needed progressivity and equity to the tax code.

As you can see here, most state tax systems are upside down, meaning that they take a much greater share of income from low- and middle-income families than from wealthy families. This only worsens income inequality by making incomes more unequal after state and local taxes are collected. And it may surprise some that states that are generally commended as being “low-tax” states like Texas, Florida, and Nevada, are actually high-tax for low- and middle-income families.

To get a better idea of this, let’s take a look at Nevada’s tax system. As you can see, this graph shows the impact of Nevada’s state and local taxes as a share of family income. You’ll notice that this tax structure is regressive, meaning that effective tax rates are higher for low-income households but decrease as income goes up. And we use effective tax rates because they help us measure a household’s tax burden, as they are calculated by taking a household’s tax liability and dividing it by their total income.

According to our most recent analysis of the tax systems in all 50 states plus Washington, DC, Nevada ranks as the 5th most unequal and regressive tax structure.

And to get a better understanding as to why, it’s first worth talking about the taxes that make up state revenue collections. State budgets are primarily supported by three main tax types: income taxes, which include personal and corporate income taxes, sales and excise taxes, and property taxes. The last two are regressive taxes, with the sales tax traditionally being the most regressive tax because individuals are taxed the same dollar amount regardless of their income.

An income tax with graduated rates on the other hand, is based on ability to pay, as tax rates increase as income goes up. All of the most equitable tax systems include personal income taxes which are progressive (but to varying degrees).

So, it’s no surprise that when looking at Nevada’s tax structure you see why it is so regressive: There’s a high reliance on sales and consumption taxes and necessities like groceries are included in the sales tax base, there is no income tax, and the state lacks refundable tax credits to help offset the other regressive taxes.

Recently, Washington state (which has the most unequal tax system in our rankings) enacted a 7 percent capital gains excise tax that applies only to profits over $250,000 and does not include real estate or retirement accounts, and the tax is expected to raise $500 million annually. Last year, in Massachusetts, voters approved the Fair Share Amendment, which creates a 4 percent surcharge on income over $1 million dollars, and the revenue will specifically help fund education and transportation projects. And in Arizona, voters approved a 2020 ballot measure that would have also added a surcharge to the top tax rate and applied to single filers earning over $250,000 and joint filers earning over $500,000, though legal challenges and the previous administration’s efforts overturned the measure.

Policy reforms that include taxing wealth or high incomes remain as popular options for both lawmakers and voters. It would be wise to, at the very least, explore the impacts of tax policy options that include taxes on wealth, ensuring that Nevada takes the first step down a more equitable path toward broadly shared prosperity.