LAS VEGAS — Responding to today’s release of a study paid for by margin tax proponents and purporting to show that the tax would have a positive impact on Nevada’s economy, Geoffrey Lawrence, NPRI’s research director, released the following comments:

The analysis funded by the margin tax sponsors through UNLV’s Center for Business and Economic Research suffers from several major shortcomings.

First and foremost is that the economic-impact model employed by the authors fails to account for the negative impact of short-term capital consumption in the medium- to long-term. While not all details are provided, the purported job “gains” from the margin tax appear to result entirely from diverting corporate funds from capital investment toward government spending programs that are more labor-intensive.

Even the most basic economics textbooks, however, teach that capital investment is the primary determinant of growth in labor productivity, and consequently, wages. Private industry investments are the base of the economy.

The authors claim that this diversion of capital investment will result in an immediate boost to state gross domestic product, supposedly because converting these resources into wage income will accelerate cash flows and produce a “stimulus” effect.

Likewise, the benighted may grow fatter in the short term by eating their seed corn. Farmers, however, never prosper by eating their seed corn and neither can advanced economies.

Sustaining and growing Nevada’s capital supply is vital to Nevada’s long-term economic growth and increasing the earnings of private workers. Ph.D. economists should know this.

Additionally, the authors appear to intentionally mislead readers about the impact that higher spending has on public education. While the authors acknowledge the large body of academic research showing no relationship between spending levels and outcomes, they purport to represent an offsetting body of research that finds such a relationship.

The studies they cite, however, don’t actually make this comparison at all. They instead relate class size to achievement levels in the early grades — a body of research that is not in dispute.

Other comparisons made by the authors, such as the impact that an additional year spent by residents in college can have on an area’s economic output have nothing to do with the margin tax and appear intended only to further mislead the reader.

Of course there is a positive association between attainment in higher education and labor productivity. But the margin tax has no bearing on how much higher education is received by residents precisely because of the lack of relationship between K-12 spending levels and student outcomes — a fact the authors acknowledge before trying to mislead on that topic.

Lawrence shared that NPRI’s recently released study on the impact of the margin tax was authored by Paul Bachman, Michael Head and Frank Conte of the Beacon Hill Institute at Suffolk University and used Beacon Hill’s Nevada State Tax Analysis Modeling Program (NV-STAMP®). The program used five years worth of data to simulate the consequences of the new, higher taxes flowing through the Silver State’s economy.

The Beacon Hill study found that the margin tax would destroy 3,610 private sector jobs and decrease Nevadans’ real disposable household income each year by $240 million.

Lawrence also said that there are many ways to increase student achievement without needing to raise taxes and noted that his recent report, 33 ways to Nevada education without spending more, offered numerous recommendations and a rich history of the academic debate on spending and student achievement.

Read more:

• The Fiscal and Economic Impact of Establishing a Margin Tax for Nevada: http://www.npri.org/docLib/20140722_BeaconHillmargintaxstudy.pdf
• 33 ways to increase Nevada education without spending more: http://www.npri.org/issues/publication/33-ways-to-improve-nevada-education-without-spending-more

###