The Tax Foundation released a study in early 2008 that ranks states according to their per-capita taxing and spending. It’s only 12 pages.
The most-often quoted ranking for Nevada from the study is that we rank near-last in tax burden. The implication is that Nevada’s tax structure is unreasonably stingy and that it cannot provide enough funding to run state and local government.
This is deceptive, however.
The tax-burden ranking is based on the average taxes Nevadans pay to all state and local governments, divided by our average income (see page 2, table 1).
For example, when a Nevada family hits Disneyland for a weekend, it pays a number of taxes to California – room tax, gasoline tax, taxes on food, sales tax on shopping, and so on. Although none of these tax dollars are used in Nevada schools, or building Nevada roads, or locking up Nevada’s prisoners, they count in determining our “tax burden.”
Even when a Nevada family stays home, we pay taxes to other states. For example, the cost of filling your car up with gasoline includes a share of taxes assessed by the state of Alaska on crude oil when it is pumped from the ground.
This is broken down a little more on page 4, table 2. We pay, on average, $1,293 in taxes to other states besides our own, and $1,952 to our own state and local governments.
So to arrive at our “tax burden” ranking of 49th, we add the taxes we pay to our own state and local governments to taxes we pay to other states’ state and local governments, and divide by our average income (note that Nevada has the 7th highest average income – we are more prosperous than most states – and that further serves to push our “tax burden” ranking lower).
Because our tax burden ranking is based only on what Nevadans pay, it cannot be used to measure if Nevada’s tax structure is “stingy” for purposes of funding the services of state and local government. Instead, we would want to add together the taxes that we pay to our own state and local governments, and add to that the amount of taxes that we collect from other states’ residents, and divide by our population.
This is what the Tax Foundation does on page 9, table 6.
It turns out we collect well above the average amount of taxes from residents of other states – in fact, we rank 7th highest on a per-capita basis. And when you add the taxes our state and local governments collect from Nevadans to the collections from non-Nevadans, our state and local government spending per-capita ranks 25th – not stingy at all!
Half the states spend more accomplishing the mission of state and local government, and half pay less. We are the median state.