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LINCOLN — When it comes to the whys and hows of state tax policy, it’s hard to beat public hearings of the Revenue Committee at the Nebraska Legislature.
There’s a fascinating mix of folks testifying, from dark-suited corporate lawyers and accountants asking for tax cuts, to blue jean-wearing farmers wondering why property taxes are so high.
But you always heard a common refrain from the state’s business community: Our income and property tax rates are so high, we’ve got to remain competitive with neighboring states by giving generous tax breaks to companies when they build new factories or add jobs.
Nebraska’s first tax incentives for corporations (LB 775) were spawned out of fear that ConAgra was leaving Omaha, and that Union Pacific would move its headquarters to St. Louis. “To the Arch by March” was one saying.
Since 2006, the state estimates the incentive programs have inspired $25 billion in corporate investments in the state, and created more than 33,000 jobs. Those are inspiring numbers, though there’s always been questions about whether those investments and job gains would have happened anyway, without the tax breaks.
Now, State Auditor Mike Foley, a pretty common- sense conservative, is raising alarm that Nebraska may have gone too far in passing corporate tax giveaways.
In a very blunt 20-page letter to state lawmakers, Foley — a former state senator and lieutenant governor — wrote that the tax credits and refunds allowed under the state’s Advantage Act and ImagiNE Act might bust the state’s already fragile budget, which is currently facing a $289-million shortfall.
Foley projected the state is looking at giving out $1.5 billion in corporate tax incentives over the next four years, a figure he called “staggering.”
When you combine that with the state’s growing amount of uncollected state taxes (more than $650 million in delinquent and contested tax payments), and that the state either doesn’t audit companies to make sure they are creating jobs or that such audits are slow in happening, the auditor sees trouble.
“ … the (Advantage) Act and the ImagiNE Nebraska Act appear to contain some operational inadequacies that may hamper their effectiveness – resulting in the possibility of them becoming a drain upon, as opposed to a boon to, this State’s economy,” Foley wrote. I’ve sat through more Revenue Committee hearings that I want to admit. (At one time, I figured that my tombstone would read “He could sure write a tax story.) And more than once, I’ve seen tax breaks move forward based on the notion that “well, we think the state can afford this.”
But as well all know, there’s a limit to generosity, especially when it’s our tax dollars we’re talking about. Remember, every million dollars we give away in tax breaks for companies has to be made up by someone else. Like us.
That old argument that corporate tax incentives were necessary because Nebraska’s income tax rates and property taxes were too high is losing some steam.
(And I thought the “keeping up with the Jones” argument failed to give credit to the advantages that Nebraska has to offer, like low cost of living, great public schools, lack of crime and superior volleyball teams.)
The Legislature, two years ago, set in motion a reduction in state income taxes, which will lower the top individual and corporate rate to 3.99% by 2027, so the idea that Nebraska taxes are too high doesn’t seem to hold as much water. And when lawmakers passed the tax cuts, some said that corporate tax incentives might not be as necessary.
Laudably, legislators recently advanced a bill to save maybe $71 million by rolling back or eliminating tax credits for relocating new workers, maintenance of short-line railroads, redevelopment of urban and rural areas, and renewable chemicals and biodiesel. Credits for food donations, reverse osmosis devices and collecting sales taxes were also targeted.
That’s a start. And Gov. Pillen seemed to call for more, similar rollbacks, saying that Nebraska’s tax incentives should be more focused on “working class Nebraskans, not Fortune 500 companies.”
The state is facing some tough fiscal times, and our state auditor has hit on one of the reasons why.
