Testimony to the Joint Session of the Nebraska Revenue, Education, and Retirement Committees

Members of the Revenue, Education, and Retirement Committees,

Thank you for the opportunity to testify today on LB 289 as amended by AM 1381. My name is Joseph Bishop-Henchman, and I am with the TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation in Washington, D.C. We are a national think tank that collects data and conducts analysis on tax issues. We do not take a position on legislation, but I would like to make three informational points.

First, sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. broadening is a common trend undertaken in many states now, as a way of modernizing the sales tax to reflect today’s service-based economy. However, you should be aware that including sales tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. s only for necessities is a difficult task, as every sale of a good or service is considered a necessity by someone. Additionally, picking only a few goods and services to subject to sales tax, rather than a more comprehensive approach that doesn’t leave many exemptions on the table as you do here, can leave the sectors you are expanding the sales tax to feeling unfairly targeted.

Second, cigarette tax revenue declines year over year, due to falling consumption of that product. This is a nationwide, decades-long trend. Using this revenue dollar-for-dollar for tax cuts elsewhere may balance in year one but will create a widening gap in subsequent years as that revenue source resumes its monotonic decline. Cigarette tax revenue should not be part of a package designed to be revenue-neutral, because it makes it not revenue-neutral.

Third, Nebraska currently has the 27^th highest sales tax in the United States by rate when you include both state and average local sales taxes. This bill would take it to 17th highest, similar to Colorado’s.

Nebraska’s property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. is currently 12^th highest by collection, and this bill would take it to 13^th or 14^th highest, still higher than Kansas, Missouri, Colorado, and South Dakota. (See table.)

Nebraska would still have the 19^th highest individual income tax, just below Minnesota and higher than Missouri, Kansas, and Colorado, and 16^th highest corporate income tax, as this bill misses the opportunity to address those taxes.

Overall, we project that this bill would worsen Nebraska’s ranking on the State Business Tax Climate Index, our comprehensive ranking of state tax structures for business friendliness, from 24^th to 26^th if the property tax reductions fully materialize, and 29^th if they do not, moving below Kansas in terms of our ranking of state tax structure. It would not be unprecedented: my home state of California, for example, has a core tax policy of raising sales and income taxes to pay for lower property taxes, with resultant pros and cons.

Put simply, Nebraska has high income, business, and property taxes. This bill would result in Nebraska having high income, business, property, and sales taxes. Thank you.

State & Local Property Tax Collections per Capita (Fiscal Year 2016)

State	Collections per Capita	Rank
Source: U.S. Census Bureau
District of Columbia	$3,535
New Jersey	$3,127	1
New Hampshire	$3,115	2
Connecticut	$2,927	3
New York	$2,782	4
Vermont	$2,593	5
Rhode Island	$2,415	6
Wyoming	$2,393	7
Massachusetts	$2,357	8
Illinois	$2,120	9
Maine	$2,105	10
Alaska	$2,047	11
Nebraska	$1,909	12
Texas	$1,762	13
Wisconsin	$1,629	14
Iowa	$1,582	15
Minnesota	$1,567	16
California	$1,559	17
Maryland	$1,547	18
Virginia	$1,545	19
Montana	$1,520	20
Kansas	$1,490	21
Pennsylvania	$1,478	22
Oregon	$1,444	23
Washington	$1,436	24
Colorado	$1,425	25
Michigan	$1,413	26
South Dakota	$1,394	27
North Dakota	$1,296	28
Ohio	$1,264	29
Florida	$1,263	30
South Carolina	$1,164	31
Georgia	$1,159	32
Hawaii	$1,140	33
Arizona	$1,062	34
Utah	$1,019	35
Nevada	$994	36
Mississippi	$988	37
North Carolina	$975	38
Missouri	$971	39
Indiana	$967	40
Idaho	$944	41
West Virginia	$915	42
Louisiana	$887	43
Delaware	$860	44
Tennessee	$836	45
Kentucky	$775	46
New Mexico	$768	47
Arkansas	$712	48
Oklahoma	$699	49
Alabama	$548	50

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