On March 3 the Revenue Committee of the Nebraska Legislature held a public hearing on my priority bill, LB 79, which explains the distribution of the EPIC Option Consumption Tax. The hearing was highly successful with proponents outnumbering opponents by a ratio of three to one. Also included in the hearing were two accompanying resolutions for constitutional amendments, LR6CA and LR7CA. Because I have not written very much on the EPIC Option Consumption Tax yet this year, today I would like to address some of the misconceptions and objections about the EPIC Option Consumption Tax.

There are many misconceptions of the EPIC Option Consumption Tax. One of the misconceptions I have been hearing about is that it takes away local control of the budgeting process. Nothing could be further from the truth. The EPIC Option Consumption Tax actually preserves local control of the budgeting process. The best local control is when you have control over how much you pay in taxes. That’s local control! What my bill takes away from local units of government (LUGS) is their right to tax you into oblivion.

Last summer we held an interim study to explore how best to resolve the distribution problem to the LUGS. I had help from a variety of sources, including county commissioners, city council members, NRD board members, and school superintendents. Together we set out to create a model that would preserve local control of the budgeting process when funding comes from the state. The result of that interim study became LB 79. This distribution model is very similar to how Nebraska used to govern the budgeting process prior to 1967.

Another objection to the EPIC Option Consumption Tax relates to the rate. According to the dynamic study prepared last month by the Beacon Hill Institute, Nebraska could implement the EPIC Option Consumption Tax at a rate as low as 7.23 percent. My bill, LB 79, sets the rate initially at 7.5 percent. The reason I did this was to create a cushion for the State. Setting the rate at 7.5 percent would generate an extra $100 million buffer for the State. Having that buffer for the first year is simply wise.

Despite these findings by the Beacon Hill Institute, many have suggested that the EPIC Option Consumption Tax would require a much higher rate. Nearly everyone I know who has ever made this claim relies upon an old study that was conducted three years ago by the Open Sky Institute in conjunction with the Institute on Taxation and Economic Policy (ITEP). That study is fallacious for three reasons: The study was conducted on an old model, the study was a static study and not a dynamic study, and the study failed to take into consideration the elimination of all sales tax exemptions.

The math of the ITEP study was simply wrong. The ITEP study used a consumption tax base of $55 billion to get a rate of 22 percent. Instead, they should have calculated the current sales tax base at $49 billion, then added $61 billion in sales tax exemptions, then add another $24 billion in economic growth for a total consumption tax base of $134 billion. That is how we got the 7.23 percent tax rate.

Some have complained that the EPIC Option Consumption Tax is regressive and would unfairly harm the poor, causing them to make hard decisions with their money. The EPIC Option Consumption Tax does less harm to those on a fixed income than the current sales tax because it imposes no taxes on used goods. It is the poor who are more likely to purchase used goods and the EPIC Option Consumption Tax imposes no taxes on used goods.

Finally, some people complain that the EPIC Option Consumption Tax would allow cities and counties to impose their own consumption taxes on top of the state-imposed consumption tax. While the bill does allow for cities and counties to impose their own consumption taxes, it needs to be pointed out that this is no different than what currently happens with the sales tax.
If you would like to know more about the EPIC Option Consumption Tax, then please visit our website at www.epicoption.org.