As Margaret Thatcher once said, eventually you run out of other people’s money.
Coming out of the Great Depression, Nevada had a problem — the state was broke. Even if Nevada had wanted to raise taxes, there wasn’t much wealth to tap in the first place. Nevada didn’t have enough people to support much in the way of manufacturing, the mines were played out, and agriculture — never Nevada’s strong suit because of our arid climate — suffered from a nationwide freefall.
In short, Nevada didn’t have, nor did it make, anything anybody wanted to buy.
So, out of desperation, Nevada became the place to do things nobody wanted to live next to — and struck gold. Powered by tourism, vice, and a bit of fiscal prudence, the state balanced its budget and kept taxes on Nevadans low.
This, of course, is a narrative familiar to anyone who has lived in Nevada for more than, oh, six hours or so. It’s been a useful story, both for ourselves and others, to explain Nevada and its culture through the years. Why are there slot machines in grocery stores here? For the same reason there are oil pumpjacks in mall parking lots in Southern California — the pump built the mall, and the slot machine built the grocery store. Why is there no income tax? Because we tax tourists and gamblers, Nevada doesn’t need one.
Thing is, schools, roads, and everything else state governments are expected to provide nowadays cost money. If you’re lucky, however, you can get someone else to foot the bill for you. Just ask Alaska, which, despite having no sales nor income tax, used to routinely place at the top of certain lazily compiled rankings that claimed to measure total tax load per citizen by naively dividing state tax revenue against population, back when the census enabled such statistical foolishness (it doesn’t anymore). It’s amazing how much government spending per citizen you can support when you have one of North America’s most productive oil fields to tax and fewer than 700,000 people to share the wealth with.
Nevada used to be that sort of lucky as well.
When other people are paying your bills — the oil industry, gaming, it doesn’t matter — you can get away with all sorts of foolishness. In Nevada’s case, easily able to convince millions of tourists to pay our bills for us via gaming and sales taxes, we decided we would Californicate our property tax system.
Borrowing from the mindset that brought Prop 13 to California, which caps both the rate of growth and the maximum tax, Nevada passed similar maximums. Between Nevada’s practice of taxing only 35 percent of a property’s assessed value and our 3.64 percent tax cap on assessed value, the state functionally has a 1.274 percent maximum on property taxes — slightly higher than California’s Prop 13-set 1 percent. That, in and of itself, is honestly rather nice, especially to this reflexively tax-averse Libertarian op-ed columnist.
Less nice, however, are two kicks in the pants that arguably fly in the face of the Nevada Constitution, which requires a uniform and equal rate of assessment and taxation. First, Nevada, like California, caps the rate of growth of assessed property valuations — in Nevada’s case, at 3 percent annually. Second, unlike California or any other state, Nevada allows residential property to depreciate.
To understand why nobody else depreciates residential property the way Nevada does, let’s say there are two houses, both selling for roughly the same price today. Surely, once sold, they’ll both be taxed at the same rate. Not so fast! Thanks to the magic of automatic depreciation, this house, which was built in 1963, is assessed for only a little more than $100,000, while this house, which was built in 2015, is assessed for more than $240,000, despite both having nearly identical list prices. Why? Because the assessed value of the house from 1963 has automatically depreciated 1.5 percent every year for 50 years by legislative fiat.
As for capping property tax valuations, California’s a reliable producer of ample documentation on the effects of that practice. Neighbors in the Bay Area, for example, pay wildly divergent property tax bills depending on when they bought into their neighborhoods. Those who bought homes during the Ford administration pay only a couple thousand a year; those who buy today, will pay more than enough to buy a new car each and every year. This was pitched as a clever way to ensure that retirees on fixed incomes wouldn’t lose their homes because of rapidly rising property values. On that count, it succeeded — which, incidentally, is why those same retirees (and their descendents, because California lets family members inherit property tax caps) actively advocate against any and all new housing construction every chance they get. And why not? By letting property values inflate, they get to profit off of the investments of their neighbors without paying a cent.
Put the two together and you not only have a recipe for recalcitrant NIMBY (Not In My Backyard)-ism, you also have a recipe to preserve every single-family home in the state, regardless of architectural or structural merit, in fully depreciated amber. Who needs new houses, built to modern fire codes and energy efficiency standards, when there are semi-disposable tract houses built decades ago with vinyl siding and single-pane windows to depreciate?
I wonder how much water leaks from 50-year-old depreciated pipes?
Fortunately, the problem with Nevada’s depreciation system is self-evident enough that even our not-always-on-the-ball Legislature was briefly spurred to action. Unfortunately, SJR 14, our Legislature’s proposed solution, would have further Californicated our property tax system into further dysfunction, which is why I wasn’t particularly sad when it apparently died. Instead of scrapping depreciation entirely and valuing property based on market value, the plan was to just reset the depreciation schedule whenever a property was sold.
That approach rather misses the point.
Understandably, longtime Nevadans want a return to the good times, when we didn’t have to pay for roads, schools, and other community services ourselves. In the past, we could ask The Strip to pay for everything. Unfortunately, there are too many Nevadans for that now, and The Strip isn’t doing that well anyways.
However, making new Nevadans pay for everything isn’t the solution, either, and that’s exactly what frozen property valuations and depreciation schedules do.
Why not, you ask? It’s all the new Nevadans who are bringing the traffic and crime and drinking our water, right? Make them pay!
That’s all true, but they’re also bringing or supporting the food trucks, restaurants, shows, and everything else that makes living in Nevada fundamentally, positively, and enjoyably different from living in empty desert scrub. Our overcrowded schools are full of “new” Nevadans, too — the children of current Nevadans. Should they pay three to five times as much in property taxes when they buy into our neighborhoods like the children of Californians do when they buy into their parents’ neighborhoods?
Surely we’re better than Californians. Surely.
As the Legislature is wrapping up, here’s a solution for the next session: Eliminate depreciation on residential property and eliminate property valuation caps. To keep things revenue-neutral and reduce the pain, recalculate the property tax maximum so that, based on modern valuations, the total tax revenue collected in property taxes remains the same. For most Nevadans, especially those who bought more recently, the result should be a marked decrease in their property taxes. To be on the safe side, include a provision that protects those on fixed incomes, but make sure that protection isn’t transferable to family members and doesn’t apply to rental properties.
We’re out of other people’s money. It’s time all Nevadans, regardless of how long we’ve lived here, pay for the government we demand. Who knows? Once we’re paying our own way, maybe our demands will become more reasonable.
David Colborne has been active in the Libertarian Party for two decades. During that time, he has blogged intermittently on his personal blog, as well as the Libertarian Party of Nevada blog, and ran for office twice as a Libertarian candidate. He serves on the Executive Committee for both his state and county Libertarian Party chapters. He is the father of two sons and an IT professional. You can follow him on Twitter @DavidColborne or email him at [email protected].