The Pillen Plan

The special session of the State Legislature has now begun. The first three days of the session were devoted to bill introduction. Gov. Pillen introduced his property tax relief plan first. I followed him shortly thereafter with the introduction of four pieces of legislation for the EPIC Option Consumption Tax. Today I would like to provide readers with my own analysis of the Governor's property tax relief plan by comparing it to the EPIC Option Consumption Tax plan.

The Governor's property tax relief plan should be called "EPIC Light". I say this because the Governor's property tax relief plan follows a similar path as the EPIC Option Consumption Tax but falls short of doing all that the EPIC Option Consumption Tax does. For example, the Governor's plan eliminates sales tax exemptions on services (EPIC charges no tax on business services), funds public schools through the State, and recognizes the need to reform the Tax Equity & Educational Opportunities Support Act (TEEOSA), three important changes also made by the EPIC Option Consumption Tax, but there are also several differences between the two plans.

The Governor's property tax relief plan differs from the EPIC Option Consumption Tax in some very important ways and falls short of doing what Nebraska's taxpayers need from a comprehensive tax reform plan. Perhaps the biggest difference between the two plans relates to taxing agricultural inputs. Because the EPIC Option Consumption Tax never taxes an item twice, the consumption tax is only ever applied at the point of retail sale to the consumer. This means that business-to-business transactions never get taxed. However, Governor Pillen's plan would tax agricultural inputs, such as the purchase of a new tractor, a new baler, or a new irrigation system.

Another difference between the two plans is that the Governor's plan allows school districts to retain their tax asking authority by capping levy increases at five percent. In contrast, the EPIC Option Consumption Tax eliminates the property tax altogether. Allowing school districts to retain their property tax asking authority likely means that any tax relief Nebraskans might enjoy from the Governor's tax plan would be temporary and short-lived. Within a few short years after the State implements the Governor's tax plan, property taxes would be right back where they are today, and that's not what I consider to be real property tax relief.

The Governor's property tax relief plan lacks a complete and coherent distribution plan for school funding. While the Governor's plan contains a fund and a formula for distributing revenues back to school districts, it lacks a plan for regulating how school districts write their budgets, additional funding for the construction of new school facilities, and a mechanism for planning for future growth, all of which the EPIC Option Consumption Tax provides in detailed form.

The Governor's plan fails to reform the TEEOSA formula. Instead, the Governor's bill simply recognizes the need to reform the TEEOSA formula. Stated in this way, the Governor is pushing his work off onto others to do for him. Under the Governor's plan a future Legislature would have to do the heavy lifting and decide how to reform the TEEOSA formula. The current TEEOSA formula favors school districts in Nebraska's urban centers. By way of contrast, the EPIC Option Consumption Tax team worked with three school superintendents to create a new school equalization formula that would work for all school districts across the state, including small school districts in rural areas of the state.

I share these differences between the Governor's tax reform plan and the EPIC Option Consumption Tax plan in order to demonstrate how broken our current tax system really is. The current tax system cannot be fixed, and that is what the Governor's plan tries to do. Instead, Nebraska needs a fresh new start with a tax plan that works. Passing the Governor's tax plan in its current form would be like waking up from surgery in the recovery room only to hear the surgeon say that he removed half of the cancerous tumor in your body. Nebraska's current tax system is cancerous, and the time has come to remove the whole tumor, and that is precisely what the EPIC Option Consumption Tax does.