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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 This link is outdated, because now, owned real property does not necessarily determine the income of an individual property owner.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. 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 II. Rationale. III. Possible strategies. IV. Parameters. Thank you, |