Tuesday, May 08, 2007

The Tax Cut Mish-Mash - When Compromise Fails

by Kyle Michaelis
Revenue Committee's LB 367 a Mediocre Attempt at Pleasing Everyone

In legislation as in life, the more things change, the more they stay the same. Last week's Lincoln Journal-Star reported:
State Sen. Ray Janssen of Nickerson knows about making law and about making sausage. He’s a grocery store owner and butcher who also is chairman of the Legislature’s Revenue Committee.

It’s true, he told senators Wednesday as they worked on the state tax-cut package: It’s not very pleasant to watch sausage being made. “But the finished product isn’t too bad,” he added.

And there have been a lot of cooks stirring this tax-cut pot, he said, as senators changed some of the ingredients in the major tax-cut package during the second stage of debate Wednesday.
Sounds like an insult to sausage-making if you ask me. More on LB 367 in its current incarnation can be found in the LJS and in the Legislature's online update. The most recent amendments to this well-meaning but ultimately cowardly and convoluted tax cut package do away with its prior lowering of the income tax for those in the highest tax bracket and its reductions to the maximum levy available to school disticts on local property taxes. Instead, LB 367 now provides for repeal of Nebraska's estate tax and for increases to two tax credits targeting low-income families and property owners.

Unfortunately, all that's really being accomplished with LB 367 is a back-and-forth trade-off between competing priorities with no consistency at its heart. This legislation bodes ill for the entire state because it so clearly demonstrates the complete lack of leadership and vision in our state government.

In general, I support compromise, but compromise is not a good for its own sake. Compromise can just as easily be used as an excuse to avoid making tough choices. Frankly, it's downright foolish and ultimately quite dangerous to be setting a state's tax policy with a band-aid approach serving priorities no deeper and no more principled than looking to make a lot of people a little bit happy - which is precisely what we've seen in this year's supposed "debate."

The problem, of course, is that everyone has ideas for what taxes to cut and where the state's revenue should be coming from. But, the Legislature can't do everything. They can't make everyone happy - that's not their job. Yet, that's exactly what the Revenue Committee has been trying to do.

A lot of the blame falls on Gov. Heineman for ever having offered his bizarrely out-of-touch tax-cut plan leaving so giant a leadership gap on the issue that the Revenue Committee was left practically starting from scratch. This debate needed a strong guiding hand and an actual vision for true reform. Sadly, those Senators who tried to press forward with such proposals - largely responding to constituents' demands for property tax relief - met resistance for political reasons. This way, no substantial challenge could develop that might expose Heineman's failure and fracture his support.

The Revenue Committee had an obligation to take-on the Governor and to do what's best for the state. Rather, they spent most of the session on damage control. It's largely been a game of protecting the state from Heineman's bad ideas without offending Heineman in the process. What got lost was the development of a comprehensive tax cut proposal that served the people rather than an all-too-partisan political agenda.

Whether defending or simply explaining LB 367, Janssen has declared, "A compromise is a compromise." When that's the best that can be said for a bill, that should raise some very serious questions. But, instead we've seen assurances of LB 367's all-but-inevitable passage by a legislature more concerned with simply passing a tax cut than with passing one that is GOOD or SMART for Nebraska.

The media's inexplicable and unquestioning embrace of LB 367 when it first came out of committee certainly didn't help in this respect. Reporting on the tax cut plan like it was a Christmas present to taxpayers understandably stifled public scrutiny and betrayed the press' responsibilities to provide unbiased coverage and independent analysis. Yet, even while the bill's now undergone a massive restructuring leaving few of the previously ballyhooed proposals intact, there's been no real criticism. This speaks to an unsettling complacency and an undeserved trust that whatever the legislature decides will, of course, be for the best.

Which isn't to say that LB 367 is all bad. It's too convoluted to be all anything - except, maybe, all over the place. I would say, however, that this latest round of amendments has actually made the legislation worse.

Eliminating the estate tax isn't the end of the world, but it's a fairly fundamental repudiation of America's anti-aristocratic ideal. Meanwhile, an $84 property tax credit for the average Nebraska homeowner that will provide tens of thousands of dollars to wealthy, out-of-state landowners hardly seems in the state's best interests. At the same time, while I appreciate who the Earned Income Tax Credit helps (poor families), I believe these same people would be better served by a simple and straight-forward half-cent reduction in the ever-regressive sales tax, for which Sen. Ernie Chambers has been and promises to continue fighting.

Honestly, I have to question those so enamored with tax credits. At the end of the day, they convolute an already complicated system and stink of bureaucracy. There are more direct, more practical, and more honest ways of achieving these same objectives - whether a property tax exemption on homesteads, the aforementioned reduction of the state sales tax, or - yes - REASONABLE REFORMS of the state's income tax.

Just because Heineman's income tax plan was utterly appalling and because his attempts to hype the need for changing the system fell entirely flat does not mean that the income tax cannot and should not be improved. Frankly, it is absurd that the highest tax bracket begins at $52,000 - meaning a middle class family earning $55,000 is being taxed at the same marginal rate as Warren Buffett. If Heineman had really offered his promised plan targeting tax relief to the middle class, it would have been hard to argue with a simple and entirely justified expansion of Nebraska's middle income tax brackets.

Even if the income tax has not been voters' #1 priority, a good idea is a good idea. Unfortunately, those were lacking in Heineman's actual plan - just as they're lacking from LB 367.

But, Janssen promises, "The finished product isn't too bad." I'd probably argue that point on LB 367, and I think I'd win. Regardless, should not being "too bad" really be good enough?

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Anonymous Anonymous said...

i'd like to know where our Lincoln state senators are on this issue?


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