Comptaxref2.doc.
TESTIMONY ON LR 345 BEFORE
THE REVENUE COMMITTEE, 11-15-00.
Good
afternoon, senators. My name is Doug
Kagan, and I represent Nebraska Taxpayers for Freedom. We are a society living in the 21st
Century, with a tax system instituted in the 19th Century.
In 1857, the territorial legislature of
Nebraska adopted a property tax, which became the greatest source of both state
and local revenues. 19th
Century Nebraska was primarily a rural, agricultural state, so taxing property,
like land and farm implements, seemed sensible, especially because there existed a strong tie between the land owned and income
received from it. This link is outdated,
because now, owned real property does not necessarily determine the income of
an individual property owner. Property
no longer reflects financial ability to pay taxes. Our state has become increasingly urbanized,
together with more not owning property.
Yet, taxing authority dependence upon property taxes has grown, as calls
for more local public services have increased.
Though
the tax base for local government entities remained primarily property taxes,
state government began to depend on sales and income taxes for revenue. The property tax burden falls on both
residential homeowners and the rural sector far greater today than in 1966,
when voters abolished the property tax as a source of state funding. Over the years, the Legislature has issued
exemptions for farm equipment, livestock, business inventories, and other
items. Although some may believe that
these exemptions equal unfair favoritism to specific groups, we believe that
the rationale behind these exemptions reveals that those wishing exemption were
only seeking needed tax relief like everyone else. We say the same regarding the valuation and
taxation of different kinds of property at different rates.
In
1995, the state tax commissioner interpreted our state constitution to read
that all residential property must have a value of from 92-100% of market
value. Though no one could find words in
our constitution to support this interpretation, the governor concurred, as did
a majority of state senators who wrote it into law in 1995 via LB 137. Since this change, total revaluation of
property has increased about 40% in Omaha and by large percentages
elsewhere. As valuations on property
have skyrocketed annually, local taxing authorities that have cut their rates
cut them insufficiently to neutralize the valuation hikes, resulting in higher
property taxes yearly for most. Local
governments relying on property taxes have a tough
time paying for current programs without hiking rates frequently on fewer and
fewer property owners. One basic
principle of a free and representative society is the ability and right to own
property, and some have lost that right because of confiscatory property
taxation.
The
TERC erroneously lumps together for comparison rapidly urbanizing counties like
Douglas with counties that probably have more cattle than people. Income differentials among counties the TERC
ignores. The TERC-mandated sledgehammer
method of across the board county revaluation does not differentiate between
houses already having accurate valuations and those undervalued,
which magnifies current inequities among homesteads and creates excessive
valuations for many, some over 100% of market value. The TERC must cease to exist. We must replace it with an elected board, all
responsible to the electorate for
re-election every 4 years.
People
demand comprehensive tax reform, not temporary patches. LB 1059 promised us property tax relief in
1990 in exchange for higher state income and sales taxes. Now, all 3 of these taxes are higher. Pushing down 1 tax only seems to raise
another. LB 881,
passed by the legislature in 1999, offered property taxpayers about a $35
annual tax reduction on homes valued at $100,000. This tiny morsel did nothing to prevent
future property tax increases and subtracted only about 2.5% from a typical
Year 2000 tax bill and for only that
year. Growing companies looking for
localities in which to build subsidiaries do not come here, because their
management personnel shudder at their prospective total tax load, particularly
property taxes.
Current
tax lids don’t work. The current lid on
property taxes and spending is porous as Swiss Cheese. One could drive a freight train through the
exceptions. Subdivisions can carry over
gobs of unused budget authority funds from previous years, including amounts
under previous limitations. Taxing
authorities can override the lid.
Combine airtight tax and spending lids, overridden only by a vote of the
people. Expanding an existing tax, like
the sales tax, also won’t work, because that will only encourage more
spending.
In
conclusion, we not only need tax equity; we need tax and spending relief!! NE state government spending since the mid
‘80s has grown faster than the rate of inflation, and our tax burden has grown
faster than our increases in income. Of
all 50 states, we are 20th in total taxing per capita, 13th
in per capita property taxes. According
to the Small Business Survival Index, NE was 33rd out of 50 in 1999
and 30th in 2000 for quality small business environment. Our suggestion is to begin the process,
incrementally if necessary, to reconstitute the entire state and local taxing
system.
I.
Objectives
A. implement state and local
comprehensive tax reform.
B. bring fiscally conservative state
senators together to propose solution(s).
II.
Rationale.
A. there exists no statewide
consensus on revising the present tax system.
B. the state faces a $750 million
deficit over the next several years.
III.
Possible strategies.
A. a private citizen/expert
comprehensive tax reform task force to recommend how the state should proceed
in completely overhauling tax policy.
B. public hearings for citizen/taxpayer
input.
C. bills/resolutions for incremental
comprehensive tax reform for citizens.
D. bills/resolutions for incremental
comprehensive tax reform for small businesses.
E. coordinate with office of Governor, if
he concurs with this course of action.
IV.
Parameters.
A. no increase in basic taxes.
B. no expansion of taxes or in
the tax base.
C. solicit advice from and/or study by
state tax experts.
D. study how present levels of taxes
impact sectors of society.
Thank
you,
Doug
Kagan, NE Taxpayers for Freedom