Economic reasons for opposing the mining tax

Reno Gazette Journal June 27,2021

My last column focused on the Nevada Legislature’s Republican Surrender Caucus of Heidi Gansert, Jill Tolles and Ben Kieckhefer from the Washoe county and Tom Roberts, Keith Pickard and Scott Hammond from Clark county. While that column focused primarily on disagreement in political philosophy, my strong feelings on this topic stem from a deeply rooted economic philosophy. This column focuses on my economic disagreement with the mining tax increase.

It goes against the fundamentals of taxation: As I wrote in my column on tax reform in November 2017, a good tax plan should have a broad base with a low rate.  A broad base minimizes preferences while maximizing revenue, allowing rates to be kept relatively low. A low rate disincentivizes cheating. As evidenced in many economies with high taxes around the world, very high rates result in an underground economy where transactions are off the book, resulting in no revenues from such transactions. Mining tax increase flies in the face of one of the key fundamental principles of taxation as it is very narrow in targeting a single industry.

Government should not be picking winners and losers: In selectively increasing tax on one industry, government is picking winners and losers. Today its mining, tomorrow it will be gaming, who knows what comes next? When government selectively goes after one industry, it is not done with the best interest of the state and its people. Instead, politicians and their favorite lobbyists determine who gets the shaft (pun intended). This is where pay for play happens and political punishment is meted out. Do we really believe that mining will be facing higher taxes today if most of the mines are in Clark county? Speaking of which, in case you did not notice, all the Surrender Caucus members are from Clark and Washoe county, none representing the rural counties.

Mining tax disproportionately impacts rural counties: Rural counties are home to most of the mines. Taxing mining takes money away from the rural counties and sends them to the two biggest counties in the state (Clark and Washoe).

There is no need for a tax increase: As this publication reported a few weeks back, Nevada is getting a direct bailout of unrestricted funds from the federal government to the tune of $2.7 billion, which is more than half of our state’s annual spending. Based on other reports, the total bailout from the federal government will exceed $7 billion. Furthermore, AP reported earlier this week that $1.1 billion in relief is designated for schools. With that significant infusion of cash, where is the need for higher taxes?

One final point: The common argument is that mining cannot pick up and leave. If that is true, I have no doubt our politicians would have increased the taxes to a much higher level much sooner. The fact is, all else being equal, when the cost of mining increases in one location, it decreases the amount of mining activity at that location as other locations become more profitable. Just like water finds its way to the lowest point, economic activity always shifts to areas of lower cost and mining is no exception.

Let’s take gold as an example. In 1970, South Africa produced two-thirds of the world’s gold. As late as 2006, South Africa was the largest producer of gold in the world. Today, just 15 short years later, South Africa is not even one of the top-10 gold producers in the world. Do we really want that fate for Nevada’s mines?