The New Nevada: Taxpayer Bucks for Billionaires
While Nevada’s public is spared excessive lawmaker interference as its Legislature only meets every other year for 120 consecutive days, this year will be the third in a row the Legislature will be called into special session to vote on a handout for a billionaire.
There was a time Nevada was thought to be libertarian, with no income taxes, bars that never close, and good gamble always available. The government was relatively small and the government handouts for business few. When the recently passed Perry Thomas began making bank loans to gambling halls, replacing union slush funds and mob money, legitimate capital sources couldn’t wait to throw money at Sin City and the Silver State.
But the Silver State is not what it used to be. Its freedom ranking has fallen from 5th to 11th. With a ranking of 33rd, the state is among the worst run in the country and its lawmakers cannot help saying ‘yes’ to billionaires, smooth-talking or otherwise, seeking taxpayer largesse.
This year it’s Las Vegas Sands Chairman and Las Vegas Review-Journal owner Sheldon Adelson who wants to contribute $650 million of his family’s money to build a state of the art stadium seating 65,000 and costing $1.9 billion to entice the Oakland Raiders to move, if, and only if, $750 million in room tax receipts go towards the project. An increase in the tax requires legislative approval.
The world’s 22nd richest man according to Forbes, with a net worth of $25.2 billion, admits he’s no football fan, but told Yahoo! Finance, “We can fill our rooms during the slowest time of the year. Mid-November to December is the slowest part of the year….So I’m doing it as a community effort. I don’t need it. I could live without it.”
When pressed by Yahoo as to who would absorb the tax, Adelson said, “But all of our hotels, for the most part, are occupied by tourists, who pay a room tax. So the local residents here won’t feel any imposition of taxes.”
What the Sands head man assumes is that the tax will be shifted forward. However, as Murray Rothbard wrote in Power & Market, “It should be quite evident that if businesses were able to pass on tax increases along to the consumer in the form of higher prices, they would have raised these prices already without waiting for the spur of a tax increase.”
Contrary to Adelson’s claim, the tax increase will lower revenue, and thus, what hotel properties will do is shift the tax backward to be absorbed by their employees and suppliers. “Specific factors in industries that have lost business as a result of the shift from private to governmental demand will lose proportionally more in income,” Rothbard explained. “Specific factors in industries gaining in demand will lose proportionally less, and some may gain so much as to gain absolutely as a result of the change.”
Asked if he’d still put his family’s $650 million toward the project if the Raiders don’t come, Adelson told Yahoo!, “If I don’t get a professional football team I’m not going to do it. It’s going to lose money otherwise. That’s why municipalities and government have to put up the money. If you want that kind of economic development for your city, the city government has to help to finance it.”
Two years ago Elon Musk, with a $10.7 billion net worth, asked Nevada lawmakers for handouts and walked away with more than he dreamed of. “The overall value to Tesla is estimated to be $1.25 billion over 20 years–a figure that is more than double the $500 million package CEO Elon Musk said would be required to draw the company,” reported the Reno Gazette-Journal.
In 2015, The Los Angeles Times reported that Musk entities had helped themselves to $4.9 billion in government subsidies. “He definitely goes where there is government money,” the Times quoted Jefferies analyst Dan Dooley, who also added, “That’s a great strategy, but the government will cut you off one day.” Before its facility produced anything, Tesla sold $20 million of its tax credits this year to a profit-making company MGM Resorts International.
Beyond state government giveaways, Janet Yellen’s Federal Reserve has provided a brisk tail wind for Tesla, Grant’s Interest Rate Observer points out. The company “has been sustained by ultra-low interest rates, a rising stock market and a speculative zeitgeist that favors celebrity promoters.”
Musk, described by Grant’s as a “protean creator, spender, borrower, innovator, talker, printer of red ink, spinner of yarns and blower of deadlines,” and his operations has the Reno housing market humming. According to Curbed.com, Tesla and competitor Faraday Future will create the need for “at least 40,000 more housing units; single-family homes as well as apartments and condos for younger engineers and techies over the next five years, according to state projections.”
Faraday Future is the brainchild of Jia Yueting who is reportedly worth $4.6 billion. The company is slated to be making electric cars in North Las Vegas after the 2015 Legislature ponied up $9,500 per job in transferable tax credits, a 15-year, 100 percent sales tax abatement and 10-year, 75 percent property, and modified business tax abatement.
The Legislature ladled out the goodies to Faraday sight unseen. A couple months later, the company “rolled out a version of its FFZero1, a Batmobile-like concept car, before hundreds of guests at an unveiling that precedes CES…” the Las Vegas Review-Journal’s Richard Velotta reported.
Famous securities short-seller Jim Chanos points out that BMW, and other established companies, plan to convert its entire fleet to electric in ten years and already has the infrastructure and knowhow to get the job done. The investor, who made millions shorting Enron, calls the valuation of Tesla, “sort of silly,” when “real companies, with real products” like BMW and Apple will be competing with the startup.
Chanos said the $2.6 billion merger with SolarCity Corp., will make Tesla Motors Inc. a “walking insolvency.” Low gas prices don’t help the case for electric cars. Former Reagan Budget Director David Stockman mentioned on a conference call, “The odds of success selling electric cars with the current low oil price are somewhere between slim and none.”
But Nevada politicians have their rose-colored glasses on, counting on an electric future. “I was extremely impressed with everything I saw here tonight,” Governor Sandoval drooled when he saw Faraday’s one-seater.
The Governor may be impressed, but, an organization with a dog in this fight–OPEC–is not so much. “The group predicts battery-powered electric cars will capture just 1% of global vehicle sales by 2040,” reports CNNMoney.
As for taxpayer-funded stadiums, they aren’t such hot deals either.
Raymond Keating, chief economist for the Washington-based Small Business Survival Committee, wrote, “The economic facts, however, do not support the position that professional sports teams should receive taxpayer subsidies. The lone beneficiaries of sports subsidies are team owners and players.”
Economist Keating concluded, “Indeed, the results of studies on changes in the economy from the presence of stadiums, arenas, and sports teams show no positive economic impact from professional sports–or a possible negative effect.”
While Nevada Lawmakers will be given a third try to do the right thing for their constituents next month, they will likely fall in behind Republican Governor Sandoval, who, after being charmed by Raiders owner Mark Davis, issued a statement, “We can and must usher in a new era for tourism in the Las Vegas market, while keeping our citizens and visitors safe, and ensuring our position as the global leader in entertainment and hospitality.”
This brings to mind what one-time Nevada resident Mark Twain (maybe) said, “No man’s life, liberty, or property is safe while the legislature is in session.”
There was a day when Nevada’s economy was driven by Benny Binion’s simple philosophy: “Good food, good whiskey cheap, and a good gamble.” It’s been a winning strategy for years. Now, instead of entrepreneurs risking their own money, state government, armed with tax money, is betting on celebrity long shots.