Cathleen Allison, Associated Press
Nevada Assembly Speaker John Oceguera, D-Las Vegas, left, and Senate Majority Leader Steven Horsford, D-North Las Vegas, arrive at a meeting with state business and community leaders Thursday morning, May 5, 2011, at Western Nevada College in Carson City, Nev. Democratic lawmakers continue to work on a tax plan despite Gov. Brian Sandoval's stance against any tax or fee increases.

CARSON CITY, Nev. — Democratic legislative leaders on Thursday rolled out a tax proposal they said is needed to avoid deep cuts to education and social services and would put Nevada's tax structure on more solid footing for the future.

The proposal would extend taxes approved by the 2009 Legislature that are scheduled to sunset June 30, and extend the sales tax to include some consumer services. The plan would phase out the state's modified business tax based on payroll in favor of a so-called margin tax, a concept that backers said has been adopted in Texas.

Exempting the first $1 million in revenue, the 1 percent tax rate would then be based on 70 percent of total revenue; total revenue minus wages and salaries paid; or total revenue minus the cost of goods sold. The tax would apply to whichever option is less.

Assembly Speaker John Oceguera, D-Las Vegas, and Senate Majority Leader Steven Horsford, D-Las Vegas, pitched their plan to about 130 business and community leaders at Western Nevada College in Carson City.

Combined, Democratic leaders said the package would bring in about $1.5 billion to soften the budget blow to education and social services in Republican Gov. Brian Sandoval's $6 billion budget proposal.

Geoffrey Lawrence, deputy director of the conservative think tank Nevada Policy Research Institute, said a margin tax is a bad idea because the levy is assessed at every stage of a production.

"Not only would it discourage high-tech jobs from coming to Nevada, it will make the state seriously uncompetitive. The Democratic plan essentially shuts the door on any hope of economic diversification," Lawrence said.

Sandoval has said he'll veto any tax or fee increase, and Republicans in the Senate and Assembly have stood firmly behind him. Democrats hold slim majorities in both chambers but lack the votes to pass a tax hike or override a veto.

"I am not drawing a line in the sand," Horsford said Thursday. "What we are talking about today are options ... we want to be flexible."

Horsford and Oceguera met with Sandoval, as well as Republican legislative caucuses, before the presentation.

"We had a frank discussion about our differences of opinion concerning the impact of raising taxes, and I restated my belief that raising taxes in this economy would be a mistake," Sandoval said in a statement.

GOP lawmakers also were not swayed.

"Raising taxes is a decision that ignores the economic reality that Nevada faces," said Assembly Minority Leader Pete Goicoechea, R-Eureka. Raising taxes, he said, "jeopardizes the stability of our economy."

The Senate GOP caucus thanked the Democrats for briefing them before releasing their plan, but said they remain "gravely concerned" that the proposal would have a "chilling effect on Nevada's ability to emerge from the ongoing economic recession."

But they said they look forward to the Democratic leadership's willingness to consider collective bargaining, teacher tenure, public employee benefits and other government reforms.

Sandoval on Tuesday proposed adding nearly $270 million to the budget, with most going to K-12, based on a brighter tax forecast for the coming biennium. In a televised speech that night, Sandoval cited improving economic signs as Nevada tries to climb out of the Great Recession that crippled the state with record unemployment, foreclosures and bankruptcies.

"We can't tax our way out. We can't cut our way out. But we can, and will, grow our way out," the governor said.

Jeremy Aguero, an economist with Applied Analysis, said Sandoval's budget relies on $1.2 billion in "non-recurring" revenue — money that won't be available two years from now.

Aguero said Nevada's economy would need to grow at 12.3 percent, an unlikely pace, in each of the next two years just to break even.

Democrats want to restore $920 million to the governor's recommend general fund budget. Of that, $623 million would go to K-12 education; $123 million to Nevada's higher education system; and $174 million to human services such as restoration of mental health courts.

They said their plan also would resolve $615 million in "structural imbalances" in the budget — a reliance on borrowing or taking accounts from local governments, like $300 million Sandoval wants from school district bond reserve accounts.

"I think what we do this legislative session will decide the course of this state not just for the next two years but for a generation," Oceguera said later.

Horsford said Democrats have committed to $339 million in education cuts, including requiring teachers to pay into their retirement, elimination of step pay increases and other incentives.

Additionally, they said they are supporting other reforms identified as Republican priorities, such as performance-based pay incentives, changing the state Board and Education, and extending teacher probation.

Bills implementing the tax proposals will be introduced in both the Senate and Assembly next week.

Lawmakers are barreling toward a June 6 adjournment set by the constitution. A special session will likely follow if a budget agreement is not reached by then.