In a not-too-surprising ruling last Thursday, the Nevada Supreme Court overturned Democratic legislators’ 2019 attempt to cancel a scheduled cut in the Modified Business Tax (MBT). While it’s unlikely this judicial hit to state coffers will completely ruin the state budget at the end of this session, this should be viewed as a warning that Nevada’s status quo on tax and budget policies may just be falling onto its last legs.
How the hell did the Nevada Legislature fall into this mess?
In 2019, Democrats in the Nevada Legislature proceeded to pass a budget that included the continuation of the Modified Business Tax (MBT) at its then-present rate and the continuation of a DMV “technology fee” that was set to expire in 2020. In 2019 that appeared to preserve $98 million in tax revenue, and it now appears that the state collected about $107 million in MBT revenue that will have to be refunded in addition to the court essentially ordering the Legislature to cut the MBT rate unless a ⅔+ supermajority of legislators agree to re-raise the MBT. Since all eight Senate Republicans opposed SB 551 in 2019, this bill to cancel the scheduled MBT tax cut and failed to garner the ⅔ needed to pass constitutional muster.
Though Democratic leaders slammed the Republican legislators for filing this lawsuit in the first place, the Nevada Supreme Court’s unanimous 7-0 ruling against Democrats’ 2019 MBT and DMV fee decisions and their subsequent denial of Republican legislators’ request for attorneys’ fees suggest that they really tried to stick to constitutional law regarding how the Legislature can change the state’s tax laws. And really, the Nevada Constitution as it currently stands is quite clear on how legislators can change tax laws.
Following its two-round passage in 1994 and 1996, Question 11 mandates a ⅔ legislative supermajority for any “measure which generates or increases a tax, fee, assessment, rate or any other form of public revenue”. Regardless of what the Supreme Court Justices thought of the wisdom/folly of this policy, that’s the law we have on the books. And really, we need to take a closer look at ourselves and our elected policymakers to see just how awful of a folly this has actually been.
We may not be broke right now, but we still need to fix this mess.
So far, it appears that the Nevada Supreme Court’s ruling on SB 551 may blow as much as a $250 million hole into the 2021-23 state budget. That’s still well below the $586 million surplus that the Nevada Economic Forum identified earlier this month, and this doesn’t yet factor in the $2.738 billion in American Rescue Plan funds that the state will soon receive. Since the Legislature’s “money committees” have already finalized budget accounts that restore some of last year’s budget cuts, this Nevada Supreme Court ruling probably won’t break the budget, especially once Rescue Plan funds come online.
However, that does not mean the system is not broken. Remember Governor Steve Sisolak’s (D) first State of the State speech in January 2019? Back then, Sisolak proclaimed, “If it ain’t broke, don’t fix it. […] This balanced budget does not contain any new taxes.”
Here we are in 2021, when the Nevada Supreme Court unanimously confirmed that a ⅔ supermajority is necessary just to cancel a previously scheduled tax cut, when such a court ruling often has the potential to blow up the state budget, and when the main reason (perhaps, the only reason) why Nevada will probably avoid such a budget blow-up this session is the federal government providing multiple rounds of stimulus that culminated in the Rescue Plan’s $2.7 billion in direct aid to the state government. This system is broken, and we can’t afford to keep pretending we don’t need to fix it.
The problem with Nevada Republicans: Their hypocritical “cancel culture”
Before we proceed, let’s return to the time and the place where this tax cut was first scheduled: the Nevada Legislature, in 2015. Funny enough, this MBT tax cut is actually part of a tax package that not only mostly raised taxes, but also created an entirely new tax: the commerce tax. And in another interesting twist, this tax package was shepherded by then Governor Brian Sandoval (R) and passed by a Republican-majority Legislature.
For some pundits and other “political insiders”, this heralded the launch of a “New Nevada” with Sandoval actually achieving what then President Barack Obama hoped for in Republicans “breaking the fever” of intransigent “hyper-partisanship”. But in reality, and as we documented in these pages in 2018, Sandoval actually represented a wing of the Republican Party that was quickly dying off.
Before Sandoval took office, the late Governor Kenny Guinn (R) and the late State Senator Bill Raggio (R-Reno) were considered elder statesmen of the Nevada GOP. Guinn led the charge for the 2003 tax package that included the creation of the MBT, and Raggio was the ultimate cross-the-aisle dealmaker who had no qualms about crossing then Governor Jim Gibbons (R) in 2009 to stop his proposal of more extreme budget cuts with a package of tax increases that would later become known as “The Sunset Taxes”, as they were scheduled to end in 2011 before Sandoval and a small clique of Republican legislators reached an agreement with Democrats to extend them in 2011 and 2013. When Sandoval decided to pivot to progressive tax reform in 2015, it did feel like the continuation of the legacy that Guinn and Raggio had strengthened.
By the end of Sandoval’s second term, the Republican who was campaigning to succeed him in office openly advocated against Sandoval’s policy agenda, proclaimed his opposition to continuing the tax package that Sandoval championed in 2015, and attacked opponent Steve Sisolak as a “California tax-and-spend liberal” for Sisolak merely voicing support for preserving Sandoval’s legacy. For all of Republicans’ current temper tantrums over “cancel culture”, they effectively canceled Sandoval out of their own party.
The problem with Nevada Democrats: Their struggle to overcome their own past
Here’s where we return to Sisolak infamously proclaiming, “If it ain’t broke, don’t fix it,” shortly after taking office. Ever since former President Bill Clinton first campaigned as a “different kind of Democrat” in 1992, then proclaimed, “The era of ‘big government’ is over,” in 1996, Democrats across the country have struggled to rebrand the party and connect with new generations of voters who couldn’t care any less about how Clinton marketed himself almost three decades ago. This “Clinton Effect” was particularly strong here in Nevada, as then Governor Bob Miller (D) ruthlessly advocated for severe budget cuts that continue to reverberate nearly three decades later.
As much as Clinton, Miller, and other prominent Democrats of that era like to frame their turn toward fiscal austerity and overall neoliberal economics as the “pragmatic” path they took to reinvigorate the Democratic Party in the post-Reagan era, what initially seemed like “the smart move” proved to produce not only bad policies that exacerbated societal inequities while ditching our former manufacturing base in favor of the nebulous concept of “financialization of everything”, but also bad politics that opened the door for autocratic demagogues like former President Donald Trump to rail against the evils of “globalism” while simultaneously profiting off our neoliberal status quo.
Coming back to Nevada, Sisolak and Democratic legislative leaders have had multiple opportunities to change course and adapt to the actual reality we’re living in here and now. They finally seemed to begin moving in this direction during last year’s 32nd Special Session, when Democratic legislators advanced three distinct mining tax initiatives and promised to choose one this year to send to voters in 2022. Yet so far this session, we’re still waiting to see if Democratic legislators advance any of the three mining tax initiatives to the 2022 general election ballot.
So far, Democratic leaders have claimed they’re “having conversations” about “having conversations” with Republicans about some kind of tax deal. But considering how Republicans have already disowned the legacy of Kenny Guinn, Bill Raggio, and Brian Sandoval, and considering how Republicans ultimately refused to consider any kind of tax increase during last year’s 31st Special Session that resulted in the very budget cuts that some of these same Republican legislators now complain about, why do Democrats want to play the Charlie Brown role in another round of Peanuts style “Lucy Holds the Football”?
Here’s what we really need to “have conservations” about.
This doesn’t have to be so complicated. Republican legislators look as unlikely as ever to agree to anything that the Nevada Supreme Court considers a “tax increase”. Democratic leaders already have three mining tax initiatives to choose from, and there’s not much stopping them from introducing new initiatives to possibly send to voters in 2024 (should the Legislature approve them this session and again in 2023).
The Nevada Supreme Court’s MBT ruling should not be viewed as any kind of “unforeseen disaster”. It should be viewed as the culmination of multiple legislative sessions’ worth of kicking the can down the road and just wishing and hoping and praying that maybe we’ll catch a lucky break.
In the past, just enough Democrats and Republicans were able to strike just enough agreements to collect just enough in tax revenue so that we’d have just enough resources to get by. In the present, the very foundation of our economy is being shaken to its core. In the future, we probably shouldn’t just count on President Joe Biden to bail us out of this mess, as legislators are more or less doing now. For all the Carson City power players’ love for “having conversations”, we really need a conversation about developing a more sustainable path towards a better functioning state government.
Editor’s Note: Stay tuned for the fifth and final installment of our “What’s Going on with Nevada Democrats?” series, where we’ll further explore these taxing times at the Nevada Legislature through the lens of where the Democratic Party stands in 2021.