Marijuana Policy Project

The economy's in shambles. The state budget is broken. Our tax system is unreliable. Here's how to fix it

Happy new year. Or not.

Nevada's not exactly in the best shape lately. As the Legislature readies to meet this year, even diehard conservatives (OK, not all of 'em) find themselves confronting an ugly truth: Maybe our state tax system, built largely on sales and gaming revenue, isn't exactly the most reliable thing in the world. Partially because of that, we're facing at least a $2.2 billion shortfall through the end of fiscal 2011.This means further slashing social services, health care and even schools — institutions that have already been cut to the bone.

It doesn't have to be this way. In fact, with a little ingenuity and imagination, state leaders could easily stabilize Nevada's tax system, dig us out of this hole and resurrect rational thought.

How? Funny you should ask. Watch us save the economy — and easily generate $1 billion in additional annual tax revenue — in eight easy steps.

1. The idea: legalize prostitution in clark county

THE DETAILS: Screwing for money isn't legal in Clark County, but nearly anything goes at the 36 legal brothels around the state, including hundreds of thousands in local and state taxes.

According to George Flint, director, lobbyist and consultant for the Nevada Brothel Owners' Association, regulating and taxing sex could fill — ahem — the state budget's gaping hole, no problem.

"The truth is this: Give me an opportunity to establish a certain area where we can run and operate [brothels] as a legitimate business, and I will produce a kickback to the state in the area of $200 million a year," he says. "People are always asking if brothels pay taxes. Of course, they pay taxes. They pay unemployment compensation on their regular employees, they pay [withholding tax], they pay bar taxes, they pay income tax on their profits, plus in counties like Nye and Storey, they pay enormous business taxes," he says.

Why not regulate and tax an activity that already attracts perhaps tens of thousands of tourists to Nevada each year?

"It's probably the second biggest economic impact in the state next to gaming itself. I estimate that illegal prostitution in Nevada is a $6 billion a year industry. Six billion dollars go in and out of here, and nobody nowhere gets a nickel out of it," he says.

CHA-CHING: $200 million per year

2. The idea: Raise the gaming tax

THE DETAILS: The top tier of Nevada's gambling tax stands at 6.75 percent — the lowest in the nation. Even just a 3 percent increase, in line with what those crazy socialists at the Nevada State Education Association originally proposed, would keep Nevada casinos paying far less than what most other states require while flooding state coffers with as much as $405 million in new tax revenue per year.

Any suggestion from casino bosses that increased gambling taxes could force them to relocate elsewhere is laughable. For example, Michigan's 24 percent gambling tax hasn't stifled much casino development there. In fact, Detroit leaders say they're counting on increased casino traffic there to keep parts of their local economy on life support as the Big Three automakers die a slow death.

Mississippi's gambling tax rates of 8-12 percent, New Jersey's 9.25 percent or Missouri's 20 percent haven't killed off casinos there, although there are limits on the number of casinos operating in those other states.

Yes, economic times are tight, but gambling behemoths such Harrah's Entertainment, MGM/Mirage and Las Vegas Sands Corporation can still afford to spread a few extra percentage points of lucre. Especially considering that the governor's Spending and Government Efficiency Commission forecasts that gambling revenue will slowly continue to rebound, yielding tax revenues of at least $1.4 billion during the 2009-2011 biennium.

CHA-CHING: $250 million - $400 million per year

3. The idea: Aggressively develop a renewable energy economy

THE DETAILS: First, despite Nevada having among the highest rates of continual, year-round sunlight in the nation, access to some of the toastiest thermal vents on the North American continental shelf and broad sweeping vistas ideally suited for modern wind farms, our "leaders" have only recently awoken to the possibility of the Silver State being the Saudi Arabia of solar, geothermal and wind energy.

Maybe Bob Cooper, who heads up our state's Wind Working Group, said it best when he recently told CityLife, "Nevada is about the only state west of the Mississippi that hasn't announced a major project. Nevada is the hole in the donut." Hell, it took U.S. Senate Majority Leader Harry Reid two years before Congress finally got around to renewing tax credits for solar and other green energy in early October 2008.

Monique Hanis, spokeswoman for the Solar Energy Industries Association, says renewable power is the opportunity for strategic investment as a way to grow ourselves out of this economic meltdown.

"By choosing to invest in [these areas], we see it as part of the solution," she says.

Renewable economic opportunities abound in Nevada, home to more than 100 companies that install, manufacture or distribute solar energy products. If Nevada officials were to get serious about attracting renewable industries, new investment statewide could surge by as much as $40 billion.

The Solar Energy Industries Association further estimates Nevada could create as many as 9,000 new permanent jobs through fresh investment in green power. Overall employment, in a range of industries that would interact with green power producers, could rise by as much as 41,000 new jobs by 2016. That's gotta be good news for a state whose unemployment rate dwarfs the national average.

CHA-CHING: $20 billion to $40 billion in new green power investment/as many as 9,000 permanent jobs, each of which would provide state revenue via the payroll tax.

4. The idea: Legalize online gaming

THE DETAILS: It's hard to believe, but millions of people use the Internet for something besides surfing for hardcore porn.

If the gambling syndicate truly believes in innovation, their next evolution should be online.

Statewide economic studies are almost unheard of, but a 2008 Pricewaterhouse Coopers review found states could collect anywhere from $8.7 billion to as much as $17.6 billion in new taxes during the next decade if they'd just legalize online gambling. Those figures don't even include online sports betting.

In a moderate estimate, let's pretend a number of resourceful and aggressive Nevada gaming companies jumped into online gaming and generated half of that upper-end, $17.6 billion income over a decade — grossing about $880 million a year. Even at Nevada's current anemic gambling tax rate of 6.75 percent, state revenues would see an extra $60 million a year.

CHA-CHING: $60 million per year

5. The idea: Reform and raise the mining tax

THE DETAILS: The mining industry's revenues are up about 13 percent just in the past three years, according to a CityLife investigation. The maximum tax rate those companies can pay on those windfall profits? Just 5 percent.

However, according to additional research compiled by CityLife columnist and Las Vegas Gleaner blogger Hugh Jackson, Nevada's gold mining corporations alone made $25.5 billion from 2000 to 2007. Their taxes for that same time period? Just $125.3 million, a gross tax rate of one-half of 1 percent, according to both the Nevada Department of Taxation and Jackson's own research.

Nevada caps its mining tax rate at 5 percent, although you'd be hard-pressed to make the argument that mining companies here have paid that much in a while. The industry took in $5 billion from the sale of precious metals in 2006. It paid $62 million in net proceeds of mineral taxes that year, of which state government's share was $30 million — thanks to a clause in the state constitution that allows mining to deduct most of its overhead costs.

Let's say we taxed mining like we do with gaming — on its gross profits — and upped it to an 8 percent tax as some advocates suggest. Instead of the state getting a mere $30 million in 2006, it would have instead received $338 million. Assuming gold prices aren't dropping anytime soon, that's a promising new source of revenue. This change would, however, require an amendment to the state constitution, which would take about five years.

CHA-CHING: $338 million per year

6. The idea: Legalize pot. Then tax it

The details: Marijuana is already our nation's largest cash crop (and its cultivation is flowering here in Nevada, too). A 2006 study found that marijuana production, at a value of $35.8 billion, exceeded that year's combined value of corn ($23.3 billion) and wheat ($7.5 billion).

According to further research and extrapolation from Dr. Jon Gettman, the author of that 2006 study, Nevada could conservatively anticipate statewide annual cannabis sales of more than $232 million.

At the standard state tax rate of 7.75 percent, more than $18 million of fresh tax revenue from legalized cannabis sales would flood anemic state coffers each year.

Moreover, repealing laws that criminalize possession of reasonable amounts would also save nearly $10 million in taxpayer money each year. In 2007, a record 6,085 Nevadans were arrested for cannabis. At least 90 percent of these Nevadans were arrested for possession, according to figures from the Federal Bureau of Investigation. On average, 9.27 percent of those Nevadans are serving, or will serve, time in prison for their "crimes."

According to recent official figures, the state spends $17,572 per year to feed, clothe and house an inmate. Based on our calculations, Nevada could save more than $9.9 million per year if cannabis were decriminalized here.

CHA-CHING: $28 million per year

7. The idea: Grow a gay wedding industry

THE DETAILS: The more than 17,000 gay and lesbian couples who married in California between that state's May 2008 Supreme Court decision allowing the practice and the Nov. 4 passage of Proposition 8 which again outlawed it personify a massive, lost economic opportunity for Nevada. Based on press reports, easily an additional 17,000 same-sex couples wouldn't hesitate to travel to Sin City to tie the knot within a year of Nevada repealing its current gay marriage ban.

Considering $31 of the $55 marriage license fee goes to local government, county coffers would swell by $527,000 just in the first year of legalized gay marriage here. In addition, low-balling the cost of each marriage at $70, local sales would surge by at least $1.1 million. State tax revenues and fees on those marriages would add up to an additional $157,250.

That's just the beginning. Based on the extrapolation of statistics of visiting couples' spending while they're in Las Vegas, we estimate those newlyweds could spend an additional $10.7 million on lodging, food, shopping, entertainment and transportation here. State sales tax receipts from all those pink dollars comes to at least an additional $831,000 per year. Again, it would require a lengthy amendment to the constitution to undo a ban on gay marriage approved overwhelmingly by voters — twice! — in the early part of this decade.

CHA-CHING: $831,000 per year

8. The idea: Kill the Las Vegas Convention and Visitors Authority and use the room tax money elsewhere.

THE DETAILS: Since when do Las Vegas casinos need a government handout to help promote themselves? That's one view to take of the Las Vegas Convention and Visitors Authority, which eats up about half of room taxes. For instance, the authority projects that in fiscal 2009, it'll use about $224 million of the $420 million in room tax revenue. What if we went all libertarian on the casino industry's ass and told them to handle their own advertisement, returning that hunk of room tax to the state general fund? Sure, "What happens in Vegas stays in Vegas" is nice, but it's not $224 million nice. We'd also see a one-time infusion of cash by selling off the Las Vegas Convention Center to the highest private-sector bidder.

CHA-CHING: At least $224 million per year