The plain news is that Tesla motors sealed a deal with Nevada to locate a major new plant in Reno. You’d think that would be good news, with major investment and thousands of permanent jobs for the area. People should be cheering. But it comes in exchange for major tax breaks. That’s the bad news. So, instead of cheering, some people are turning on the Governor and others. Some, like the Nevada Policy Research Institute (NPRI) are raising policy, legal and constitutional issues.
Excuuuse me…. NPRI is DEAD WRONG.
But before we go on, please remember this is not a discussion of the merits, if any, of electric cars; this is also not a discussion of Tesla’s other deals with and subsidies from the federal and various State governments. This is only about Tesla’s deal with Nevada.
Nevada made a deal for getting 6500 jobs located here, instead of letting them go somewhere else (again). There is no violation of the Nevada Constitution; the State is NOT giving OTHER taxpayers’ money to Tesla; at worst, Nevada decided not to collect certain taxes that may be due from its operations here.
The 6500 new employees of Tesla would still directly pay all sorts of state and local taxes.
This story illustrates a key problem with the “soak-the-rich” philosophical underpinnings of tax law and tax policy, by revealing several false premises. How can you have a conversation when it’s based on false premises? The deeply ingrained nonsense is clearly evident in the news:
One false premise is the concept of a “corporation” as a separate legal “person.” There is no such thing; there are only buildings, equipment and files, and natural persons (employees) who, as indicated by their job titles, perform specific job functions vital to the enterprise. All such natural persons pay federal, state and local taxes.
Another false premise is the idea that businesses pay taxes. No, they do not; they pass them on to their customers, along with all other costs of doing business — or they go bankrupt. Whether a corporation makes a profit and therefore “owes” taxes is strictly a matter of bookkeeping and accounting, and the amount “owed” comes down to cleverly juggling the complex tax codes and their ever shifting definitions of what is deductible, taxable or exempt; what is a “cost of doing business” or “business expense” and what is not. In actual fact a “corporation” does not just sit on the money it collects; its natural-person managers pay their natural-person employees and suppliers, they park their money in a bank (which then reinvests it elsewhere), they pay out the proceeds as dividends to shareholders and as profit sharing to employees (who then spend it, save it or reinvest it), or they reinvest it in the business. Whatever happens to that money, the natural persons connected to it still pay and pay and pay the tax man.
Another false premise is the idea that a tax break is a “cost.” Sorry, no. BUYING something incurs a “cost.” What does government buy when they agree to tax less? Whatever they buy, can they resell it? When a business cuts an employee’s pay, it’s not a “cost” to the employee, it’s a reduction in income. But by some strange logic when government collects taxes at a reduced rate, it’s not reduced revenue, it’s a “cost.” Good grief.
Another false premise is the idea that a tax break is an “investment.” Sorry again, no. An investment is money you put into a business. Actual, out-of-pocket money. Your own money. You do it because you expect the business to make money and let you share in the profits. The government does not have its own money; it only collects other people’s money in the name of taxes. It does not share in the profits of the business, except in the name of taxes. Whatever the ROI (return on investment) turns out to be, it is calculated on the amount returned vs. the amount invested — not waived in the name of lower taxes. If the ROI were based on the amount of taxes waived rather than actual money actually put into the business, then ALL tax breaks would show an infinite ROI. It’s simple math — divide by zero, which is the amount the government actually “invested.” In fact that is absolutely true. For no money invested, the government just collects and collects, and the more successful the business is, the more the government collects.
Another false premise is the idea that a tax break is a “subsidy.” Sorry again, hell no. A tax break is simply a REDUCTION in the amount you PAY. Collecting less, letting you keep more of your own money, is not the same as GIVING you money. A subsidy is CASH that someone gives you, more out of kindness than any business sense (otherwise you could make a deal with an investor). If it’s a private party, the money he gives you is his. If it’s the State, then the money they give you necessarily must come from other taxpayers; the State is not a profit-making enterprise with willing customers. If the money comes from private sources, they expect you to pay it back, and then some. If the State gives you money, they may make it look like a private loan or investment, except that the repayment terms are likely to be very generous and forgiving.
Another false premise is the idea that if one taxpayer (Tesla) is excused from “paying their fair share,” then other taxpayers (us) have to “make up the difference.” NO, it just means that the government takes in less and therefore spends less; that is, the growth of government is constrained.
So where is the problem?
The problem exists only in the minds of people who buy into the notion that government must grow and grow, that government has a right to the fruits of the labors of people imaginative enough, smart enough, industrious enough and lucky enough to make a profit — that is, take from the producers simply and only because they have it. And politicians will invent any scheme to make it look legal.
Latter-day communists such as the late Senator Ted Kennedy are on record stating that take-home pay is what the government foolishly allows you to keep; that is, the government has a right to ALL your income… Lately they’ve been promoting the nonsense that they also have a right to your savings and other property, too.
Tesla’s deal with Nevada is NOT another Solyndra or Solar City or the other cronies of 0bama. Tesla is NOT getting cash from Nevada. Tesla is actually spending HERE; those cronies literally ran away with the money they got from government. The only thing Tesla got from Nevada is a tax exemption. In exchange for that, we got a serious new short term and long term investment in our economy. We got 6500 new taxpayers. And we got money flowing to us, not CA or some other State. That is a GOOD thing.
As to fair and equal treatment of other businesses in Nevada, the solution is very simple. Abolish as many of the taxes as possible. Make Nevada truly business-friendly; abolish this nonsense of a “business tax.” Tesla is a good first step. Give ALL businesses the same terms as Tesla. It might even motivate outside investors and suppliers to move here, too, and therefore keep even more money in the State. That would be a VERY good thing.
NONE of this would be a problem if we and our politicians did not buy into the predatory, marxist notion of taxing income and property. If our taxes were based only on sales — the only time when economic activity takes place, and it takes place between people who actually have money to spend — then these discussions would not even arise. People and businesses would thrive, and retirees would not be taxed out of their home. Entire armies of bookkeepers, accountants, tax lawyers, tax collectors and their fellow paper pushers would have to find productive, gainful employment. Wouldn’t THAT be a boost to the economy… It would be a very very GOOD thing.
All THAT would be a good reason to have a special session of the Legislature, a good reason to hold a rally in front of the Governor’s office or the Legislature, a good reason to talk about taxes in general, and a good reason to talk about business taxes in particular. We could start with Nevada ballot question number 3, the “education initiative,” more accurately called the gross receipts tax — two percent off the top whether you make a profit or not. Now there’s is a GREAT idea that’s sure to attract, retain and promote business in the State… NOT!!!!!!!