Legislative Testimony on LB1084, Property Tax Request Limitation Act

Good afternoon, Chairman Smith and members of the Revenue Committee.  My name is Nicole Fox, and I am the Director of Government Relations for the Platte Institute.  I am here today to testify in opposition of LB1084 as written.

While the Platte Institute supports property tax relief and an expansion of the sales tax base to sales which are not business inputs, we do not believe it is wise to fund property tax relief by increasing other tax rates, and particularly without the proper safeguards to assure lasting reforms. The increase in the cigarette tax, the income surtax, and an increase in the sales tax rate are all detrimental to our state’s revenue projections and economic growth.

In recent years, 91 percent of cigarette excise tax increases across 32 states have missed their revenue projections, some by as much as 180 percent.  Many national organizations also agree with this, even the National Conference of State Legislatures specifically states “Cigarette taxes are not a stable source of revenue.” This means depending on this revenue source to pay for local property taxes will likely result in the state coming up short.

According to research by the Tax Foundation, a millionaires’ tax is poor policy because it is a narrow, high-rate tax on a highly mobile group of people who earn less in bad economic times. Enacting such a tax makes state tax revenue more volatile and unpredictable. In addition, an income surtax will put additional pressure on small businesses in Nebraska that file through the individual income tax.

The elimination of sales tax exemptions is something the Platte Institute supports. Today we have an increasingly service-based economy, and the sales tax base needs to be updated to account for this change. This principle of including services in the sales tax base is agreed to across the philosophical spectrum among tax policy experts. Where the disagreement begins is when deciding what to do with the new revenues.

This bill directs the new revenues towards the property tax credit relief fund and K-12 education. While that choice will subsidize local property tax bills at their current levels, we are concerned that LB1084 does not have a strong enough mechanism to assure that local property taxing entities will reduce levy rates in response to receiving these new revenues.

Education is very important, and LB1084 acknowledges that by asking for a study on Department of Education Spending.  We support a study that has the potential to show where Nebraska’s school system can be more efficient in providing a quality education for all students. 

We leave it to state taxpayers to decide whether more or less of the state budget should be spent on K-12 education. While Nebraskans already fund education generously across our state, there are some states that spend much more, and many states that spend much less. But state aid alone can’t solve the problem of high property taxes without a strict guarantee that school boards will reduce property tax rates or their reliance on property taxes. LB1084 does not give taxpayers that guarantee.

Without this guarantee, new aid may only accelerate local spending.

Overall, we see LB1084 as a bill with good intent, which is to keep our education system whole while trying to reduce the property tax burden at the local level.  Unfortunately, the offset by increasing excise, income and sales tax rates is not the answer if our goal is to do so while improving Nebraska’s economic growth and revenue stability.

Thank you and I’m happy to take any questions.