Friday, March 02, 2007

Promises & Priorities: Unicameral Tax Cut Plans Coming Into View

by Kyle Michaelis
On Tuesday, the Lincoln Journal-Star's Around the Rotunda column reminded the people of Nebraska that behind the scenes in the state legislature there's a very important but little-talked-about battle going on over what sorts of tax cut options will make their way out of the Revenue Committee and to the full Unicameral for debate.

There's enough momentum behind the general principle of cutting taxes - with a healthy enough forecast for the state's short-term revenue prospects - that some sort of tax cut is all but inevitable. You'll hear no complaint here. Yet, in the eyes of the New Nebraska Network, what's more important now than raw dollar amounts are the priorities we reveal as a people - demonstrated not only by the populations to whom we target tax relief but also by the quality of services maintained and provided by the state.

Unfortunately, it's hard to get much of a sense of what to expect from the legislature at this point. One expects that Gov. Dave Heineman's LB331 will make it out of committee at least somewhat intact considering that it was introduced on Heineman's behalf by its chairman, State Sen. Ray Janssen.

Yet, Janssen has expressed a genuine interest in the legislature's hands not being tied too much to any single tax cut proposal. Thank God for that because the Heineman plan is not only contrary to the will of the people for its neglect of their property tax concerns but is also against the interests of the state with its regressive shifting of the tax burden onto those least able to carry the weight.

According to the Journal-Star, the cornerstone of Heineman's argument for cutting income taxes is job creation. Looking at the actual evidence, however, this argument fails to persuade and is completely lacking in merit:
Tax cuts equals more jobs has become a mantra for Heineman, who is trying to convince the Legislature to return more than $200 million a year in income and other tax cuts.

Heineman’s belief in the power of tax cuts is based on research done by the Nebraska Department of Revenue.

The governor’s income tax cuts would result in an additional 1,500 to 2,560 jobs the first year. By 2011 the total job growth could range from 2,837 to 4,837 jobs, based on an analysis of how the additional income would move through the economy.

The department used a computer model originally developed by the Legislature’s fiscal office to determine how the state’s business incentives might affect the economy. The computer model shows how the money might move through the economy and thus create additional jobs....

The department did not look at how other tax cut options might affect the economy — including a half-cent sales tax [reduction]....

Not everyone believes the Department of Revenue study is the final word on tax cuts and economic growth.

The Nebraska State Education Association has a report on its Web site indicating there is little direct relationship between income taxes and economic development.

“In the last decade there was no difference in average growth in the top 10 most business tax friendly and the 10 least friendly states, according to Richard G. Sims from the Sierra Institute on Applied Economics.

In general, states with high economic growth had relatively higher taxes, he says. Of the 15 fastest growing states, eight had above average individual income taxes and seven had below average income taxes. Three were in the highest 10 taxing states and four were in the lowest 10 taxing state, Sims says.

Of the 15 slowest growing states, four had above average individual income taxes and 11 had below average income taxes. Four were in no income tax states.
To be honest, it's quite appalling that the Journal-Star would even dare to suggest that Heineman's argument is rooted in a "Department of Revenue study." All he offers is a computer simulation that divines some magical number of jobs created under his proposal that would remain utterly preposterous even with some basis for comparison Heineman did not see fit to provide.

Compare that to the real study cited by the NSEA - one relying on actual facts, figures, and state-by-state comparisons - completely debunking the relationship between income taxes and job creation on which Heineman so expressly relies.

The Journal-Star has put Heineman playing a game of SimCity on par with actual science and economics - demonstrating either no understanding of the issues or no respect for the truth.

Over the last two months, the New Nebraska Network has, of course, devoted considerable efforts to challenging the faulty assumptions and unprincipled priorities underlying Heineman's LB 331.

For starters, even accepting the notion that ours is a high tax state, the income tax is one of Nebraska's least burdensome in comparison with other states.

Moreover, any talk of Heineman's simplifying the income tax structure by reducing the number of brackets from 4 to 3 must be seen in light of what he truly proposes - the wholesale elimination of the lowest tax bracket, subjecting our state's youngest and most disadvantaged population to an across-the-board tax hike.

At the same time, there's no denying that under Heineman's proposal the bulk of the benefit is reserved for those currently in the highest tax bracket, particularly those economic elites who benefit most from the outright elimination of the estate tax.

It should not surprise that these same economic elites would continue to see their taxes fall bit-by-bit over the next four years, as Heineman uses a phased-in tax cut for the rich to mask the long-term liability and dangerousness of his proposal when its $240 million in lost revenues balloons to an annual loss of $310 million. That's an additional $70 million giveaway - each and every year - to no one but the state's wealthiest citizens.

Now, as the New Nebraska Network has stated before, there is room for reasonable reform of Nebraska's income tax structure. Heineman's plan just happens to be nothing of the sort. It's true that the middle class should be broadened - but to make the system more progressive, not less so. Cutting rates might even be agreeable if the ultimate benefits were distributed more fairly across the entire population.

Even with these more reasonable proposals, though, income tax reform should not stand in the way of the more essential and immediate task of reducing our heavy reliance on property taxes - hopefully introducing some progressive mechanism to protect homeowners or to at least make the property tax burden more manageable for those on fixed incomes.

A whole host of bills have been introduced proposing property tax reforms, and I regret that the New Nebraska Network has not had the opportunity to delve into them in any real detail - be they Sen. Tom White's highly-touted $500 rebate (LB 453) or a variety of exemptions, shifted expenses, and so-called "circuit-breakers."

Regardless of what ulimately survives committee, at the start of this legislative session it seemed quite clear state senators understood that property taxes are where the voters' interests lie and that they should share those same priorities.

There has been pretty intense pressure from Heineman and the Omaha World-Herald to break this lockgrip of voters' real world concerns. There has even been some suggestion in the press that a few of the more partisan Republicans in the legislature have given up listening to their constituents on property taxes and now plan to fall in-line with Heineman's proposal. Still, it's hard to believe that Heineman could possibly have the political capital to hoodwink a majority of state senators into similarly betraying the people who elected them.

I guess we'll see how it all plays out soon enough, but now is most definitely not the time to sit back and enjoy the show.

The Nebraska media has been totally irresponsible in its coverage and concessions to Heineman on this issue. Substantive analysis has been lacking as has criticism in any but the tamest and most general sense. Last month, there was even a very disturbing sign that the legislature might follow the same weak trajectory when Heineman made the rarest of appearance before the Revenue Committe - arguing on LB 331's behalf - and was only asked a single softball question by its members.

When our public opinion and policy leaders will not offer more scrutiny than that, it is incumbent upon the people to stand up and assert themselves - protecting their own interests when nobody else will.

If you are disturbed at all by the plan Heineman's put forward, the time has come to contact your state senator and to crank out those letters to the editor. There are shapes forming in the haze of legislative process off in the distance. Battle lines are being drawn behind closed doors. The facts are on our side, as is the will of the people. Let us use them both - without fail and without flinching - in defense of the greater future it falls upon us to pave the way for all Nebraskans.

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