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As the legislative session approaches, the annual discussion about changes to Nebraska’s tax policy is again heating up. The traditional debate between reductions to income taxes, led primarily by corporate interests, and real estate property tax reform, led by agriculture interests, again takes center stage. This is not a new debate, as the same discussion dates back over 60 years. In 1966, two ballot initiatives were passed by Nebraska voters, one eliminating the state property tax and another authorizing state income tax. The result was the creation of Nebraska’s local property tax system, state sales tax, and the foundations of our state income tax system.
Promoting the tax discussion are a number of special interest and advocacy organizations lobbying for changes to current tax policy that support their objectives. The State Chamber of Commerce is currently on a multi-week, statewide tour of communities promoting their goal for income tax reform. Agriculture groups have been holding meetings in communities across the state proposing a number of tax shifts to reduce property taxes. Additionally, Nebraska’s two most active “think tanks”, funded by private donor dollars, have both held legislative symposiums with speakers that support their ideological views on tax policy. Marketing and media messaging from these various interest groups has dominated news and the public discussion.
Tax policy is a complex topic. A change to one tax has ripple effects that cascade through other taxes and programs. Every proposed change involves “winners” and “losers”. That is, in absence of a reduction in taxes with a direct and equal reduction in the spending paid for by those taxes, reducing one tax means an increase in another. With every interest group lobbying for their particular constituency, it can be difficult for taxpayers to truly grasp what the impact of proposed changes will be. For that matter, it is difficult for me, as a state senator, to consistently cut through the clutter and have reliable data to get a clear picture of the total impact of proposed changes to tax policy.
As I approach tax policy proposals, there are a number of principles I use to evaluate them. Voters may find also them helpful for cutting through the political spin and assessing the merits of a tax change. First, I look for simplicity. Many proposals involve complex transfers, calculations, and forecasts. Complexity creates opportunity for abuse of the tax code and makes it impossible for taxpayers to understand their tax liability. Second, I look for transparency. Policies that hide taxes or obscure how they are paid create a disconnect between taxpayers and how their dollars are spent. Third, I support tax policy that is neutral. Neutrality means that tax policy does not favor or punish one group or industry at the expense of another. Finally, I look at the stability of the tax policy. Wide swings in revenue create unpredictability in government services and programs.
You may notice one characteristic often mentioned in tax policy discussions is absent: fairness. The term “fair” is highly subjective and used so frequently for political spin it has no useful meaning in evaluating tax policy. A “fair” tax has become code for a tax somebody else has to pay. If the principles outlined are applied, the tax will not present an unethical burden on any single constituency.
Over the next several weeks, I will discuss the specific details of a number of tax proposals. Applying these four principles–simplicity, transparency, neutrality, and stability–we can cut through the rhetoric and politics and understand the true impact of various strategies for modernizing Nebraska’s tax system. Reasonable people can have different approaches and opinions to taxation. Nevertheless, it is important that all taxpayers have a clear understanding of how they are being taxed and why.