The Governor's Tax Plan

On the 58th day of this year's shorter 60-day legislative session Nebraska State Senators debated the Governor's actual tax plan. That plan was amended into the Revenue Committee's shell bill (LB 388) with an amendment (AM 3468). I have been saying throughout the legislative session that the Governor's plan would not deliver 40 percent property tax relief, as per his promise, and that amendment only proved my point when the bill advanced to Final Reading late last Wednesday night. The Governor may call the Legislature back for a special session later this summer to fix the bill.

The Governor's tax plan doesn't come anywhere close to giving Nebraskans a 40 percent reduction in their property taxes. The Governor's budget director, Lee Will, told the Nebraska Examiner, that the amendment to LB 388 would result in about a 22 percent reduction in property taxes, a far cry from the 40 percent reduction promised by the Governor. However, when I ran the numbers in my district, it resulted in only a two percent reduction in property taxes. So, the bill as it currently stands is meaningless and insignificant as far as property tax relief is concerned.

The Governor's tax plan ignores one of the most fundamental principles of good tax policy, namely the principle of broadening the tax base. Daniel J. Pilla is tax policy expert, who has identified the ten most important principles of good tax policy. Pilla's eighth principle states that "Broad tax bases allow rates to be kept low, which in turn encourages voluntary compliance." Pilla's point is that people don't cheat on their taxes when they believe the rate is fair. This broadens the tax base and generates more revenue for the state. Similarly, the economists, Art Laffer and Stephen Moore, have both visited me in my office and told me that lower tax rates generate more revenue for the state. Because the Governor's tax plan raises rates on such things as veterinary services, tobacco products, hemp products, skill games, soda pop, candy, lottery tickets, and self-storage fees, the plan fails to broaden the tax base.

So, what does the Governor's plan do? First, the Governor's tax plan would front load the property tax relief credits granted under LB 1107 from 2020. Too many residential homeowners are not claiming the property tax credits afforded to them under this bill. Many homeowners still don't know about these property tax credits while others simply don't know how to file the necessary paperwork when they do their income taxes. Under the Governor's new tax plan property owners would not have to submit the necessary paperwork when they file their state income tax return in order to get their property tax credit.

Second, the Governor's new tax plan would place a three percent cap on the levies of local units of government.

Third, the Governor's plan would increase the state's earned income credit from the current 10 percent to 15 percent. The higher rate would benefit lower income Nebraskans.

These fixes don't go far enough. Each of these fixes is like putting another Band-Aid on an amputation. The bottom line is that Nebraskans will get a two percent reduction in their property taxes while the Governor and the Chair of the Revenue Committee continue to ignore the EPIC Option Consumption Tax, which is the real solution to all of Nebraska's tax problems.