Did Gibbons propose a mining tax hike?
One component of Governor Gibbons' proposal to narrow the current $887 million budget shortfall is to raise an additional $50 million this biennium by eliminating a series of tax deductions currently claimed by the mining industry. This proposal has led local media pundits on both the right and the left to claim that Gibbons is resorting to tax hikes in order to balance the budget.
It is clear that Gibbons' proposal would amount to a rising tax burden for the mining industry and, hence, can be considered an effective tax increase. However, it technically is not a tax increase. Anyone who claims Gibbons' proposal is a tax hike misunderstands what that statement means. A tax increase means that the tax rate has increased or that a previously non-existing tax was levied.
Deductions, however, are highly politicized statutory exemptions from applicable taxes for engaging in certain behaviors. Usually, deductions are either the result of legislative ambitions for social engineering or successful lobbying efforts from privilege-seeking industries. (Regardless of what Gibbons says, however, they are not "inadvertent loopholes." They are purposefully defined statutory provisions.)
The foremost national authority on tax policy, the Tax Foundation, puts it best:
Those loopholes, called "tax incentives" by their lobbyists, are the enemy of tax reform. Some politicians, lobbyists and pundits will cry "Tax hike!" at the loss of their special tax breaks. And eliminating them does raise revenue, but the all-important distinction is that these base-broadening measures do not raise the statutory tax rate. In fact, they pave the way for a lower statutory tax rate, decreasing distortion in the economy and improving the stability of government's revenue flow.
As the Tax Foundation highlights, the elimination of special exemptions should be regarded as a positive move on the path to tax reform that simplifies the tax code and makes it more transparent. However, the objective for such action should not simply be to increase government revenues; it should be a precursor to lowering statutory rates.
