Prediction! The entire Las Vegas tourism industry will not dry up and blow away like so much development-stirred particulate matter that makes our sunsets so pretty. Probably.
But while we may not know how hard or for how long, these our troubled times are going to put a pretty nasty hurt on the economy, especially in Southern Nevada.
That means there will be less money for public services, even as demand for those services goes up, as it does when an economy goes south.
Some of this is reminiscent of the Great Recession. Markets tanked. The economy sputtered.
And Nevada’s mining industry thrived.
In trying times, money moves from other investments into gold for … reasons that have always seemed a little odd. When civilization fails to collapse like Glenn Beck and G. Gordon Liddy promised it would when they were selling gold on TV, the price of gold just falls again. Gold has always looked like a sort of dorky buy, investment-wise. At the least it’s high-maintenance, if you want to stay clever and sell before the price drops, which it inevitably does. An argument can be made that gold’s highest and best economic use is not as an investment instrument, but stocking the earring counter at Walmart.
All that aside, when other markets topple, gold soars. For the first time in seven years, the price of gold topped $1,700 an ounce for a few minutes earlier this week. Less than two years ago it was trading below $1,200. As of Wednesday morning it was trading around $1,670. A preponderance of people who watch the price of gold for a living expect it to go up before it goes down.
In late 2011, as the nation was slowly creeping out from under the Great Recession, gold spiked at nearly $1,900, and rarely dipped below $1,700 for more than a year.
At that time, then-first-term Gov. Brian Sandoval was chanting the obligatory mantra of Nevada first-term governors — no new taxes — and imposing austerity on the state like a common Herbert Hoover, slashing aforementioned vital public services even as demand for them was spiking.
Nevada could be considered uniquely fortunate to have what is by far the nation’s largest gold mining industry. Since the price of/demand for gold is countercyclical to the health of the economy, when Nevada’s economy is hurting, at least one part of it is booming, and could even help compensate for the rest.
Except for two things:
First, Nevada’s gold mining industry employs about 11 people. Just kidding! Mining employs a little more than 11,000 people. But that’s out of a total state workforce of 1.5 million. Mining’s employment is the smallest of all the state’s so-called major industries, so a mini-boom in the mines doesn’t translate to broadly shared prosperity for working Nevadans.
Second, of the $7.8 billion worth of minerals produced in Nevada in 2018 (2019 numbers won’t be available for two or three months yet), the industry paid a constitutionally capped 5 percent tax rate on only $2.3 billion.
In other words, about 70 percent of the value of minerals produced in Nevada was not taxed in Nevada.
The industry gets a lot of deductions, you see.
The mining tax rate is in the state constitution, so legislators can’t do anything about that any time soon.
But the deductions are merely in state statute. Legislators, or even the Tax Commission, can alter those. And have.
There are 13 of them. Mining tax deductions, that is. They range from extraction and “refining” to “corporate services” and “developmental work.”
In 2018, the industry paid a total of $116 million in mining taxes. Most of it, about $65 million, went to the counties where the mineral was produced.
If all the deductions were eliminated, the constitutionally capped 5 percent tax rate would have generated total mining taxes of $388 million.
That’s not close to enough money to fix all the public needs Nevada has neglected forever. But when other revenue streams come up short, as they will because of the economic impact of COVID-19, Nevada’s going to need all the help it can get.
Higher gold prices in 2012 translated to $255 million in total mining tax revenue, including $128 million to the state, more than double what mining paid in 2018.
The state might get a comparable boost from today’s high gold prices, if we’re lucky.
If we were smart, state revenues wouldn’t be double what they were in 2018. They’d be double what they were in 2012. More than $10.4 billion worth of minerals were produced in Nevada in 2012, but after deductions, about only half of that was taxed. Amid spiking prices, truly responsible mining tax policy should collect a hell of a lot more than $255 million.
One of the first things Nevada lawmakers should do when they meet next year is eliminate a slew of mining tax deductions (unless the governor would like to call a special session to do it sooner and make it effective immediately, so as to capture as much of the current high price windfall as possible). It’s effectively a tax hike and will need two-thirds majorities in both houses. So the governor and the lawmakers who love him should show some leadership and start building the case now.
Legislators also need to do what legislators did in the wake of the last economic crisis that produced high gold prices, and start the process of removing mining’s sweetheart tax cap from the state constitution. Except this time see it through.
Meanwhile, in this economic downturn, as in the crash, windfall profits of Nevada’s world-class mining industry will once again fly out of the state to enrich shareholders elsewhere.