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OpenSky analysis finds federal tax changes could have major ramifications at the state level

LINCOLN —  As the U.S. Senate prepares to vote this week on its budget resolution, a key step in the implementation of federal tax changes, a new OpenSky Policy Institute analysis finds such changes at the federal level could have a profound impact on Nebraska and its state budget.

From large decreases or increases in state revenue, to cuts to key services that Nebraskans need, to increased stress regarding property taxes, the potential effect of federal changes could be far reaching, the analysis finds.

However, the analysis notes, the lack of details regarding the possible changes creates tremendous uncertainty about their true effects and this brings the need to for federal and state policymakers to exercise caution when it comes to fiscal policy choices.

“With so much uncertainty regarding the tax changes and their impact on our state and its residents, it will be important for both federal and state policymakers to be sure understand the full effects of any tax plan before making any fiscal policy changes,” said Renee Fry, executive director of OpenSky Policy Institute. “Not doing so could have major unintended consequences for our state and for Nebraska residents.”

The new analysis notes:

  • The close link between the federal tax code and Nebraska’s tax code means some of the potential federal changes could automatically create large state revenue losses or gains;
  • Programs and services in our state budget that receive federal dollars could be cut significantly if federal tax cuts are offset by federal funding cuts;
  • Federal funding cuts could more than offset any state revenue gains that might be sparked by federal tax changes;
  • If the tax changes result in state revenue losses, Nebraska lawmakers may need to cut education and other services, find other revenue sources or pass the cost of these services on to property taxpayers where possible;
  • The potential elimination of deductions for state and local taxes and for medical expenses could increase stress for Nebraska property taxpayers and those with significant medical expenses; and
  • The vast majority of tax savings created by the tax changes would likely go to wealthy households and a lack of detail regarding the changes makes it difficult to tell what, if any, tax savings, might go to middle-class Nebraskans.

Contact Chuck Brown at cbrown@openskypolicy.org or 402-610-1522 for more information.

Recapping OpenSky’s Fall Symposium

Tune out the “war among the states” regarding business location. Avoid tax incentive “megadeals.” Reform large tax incentive programs. Focus instead on public investments like education and infrastructure, which really matter to the “business basics” — the 98 percent of business costs that are not state and local taxes.

Those were the main messages laid out by Good Jobs First Executive Director Greg LeRoy at OpenSky’ss third-annual Fall Policy Symposium last month.

This is especially true, LeRoy said, at a time when federal support for education, infrastructure and other key factors for economic development is likely to diminish greatly. In this new reality, states should be increasingly selective with how they use their own revenues.

“State and local taxes only make up 2 percent of a company’s cost structure,” said LeRoy, who is one of the nation’s foremost experts on business tax incentives. “If you can help companies with the other 98 percent … that’s what’s going to pay off.”

The “Other 98 percent” includes things like access to a strong workforce, infrastructure, utilities, great schools, safe communities, university partnerships and the ability to cluster with related businesses, LeRoy said.

These larger cost factors drive business location decisions so strongly that the majority of location choices are already known by companies before they even approach states and cities for tax breaks, he said.

LeRoy discussed other aspects of his research and noted that nationally, the average cost per job from tax incentive programs is about $658,000; and that across the country, large corporations receive about 70 percent of the tax incentive deals and about 90 percent of the tax incentive dollars. This runs counter to an argument that incentives help small businesses, he said.

Looming federal changes have potentially large ramifications Nebraska revenues, services

In a presentation regarding potential tax and budget changes at the federal level, OpenSky Executive Director Renee Fry said such changes could come soon as part of Congress’ budget reconciliation process.

Depending on the changes that are made, the tax changes could automatically reduce or increase state revenues, and to pay for those tax cuts, congress could significantly reduce federal funding for Medicaid, K-12 education, farm subsidies and many other programs that are important to Nebraskans, she said.

Therefore, the federal budget and tax policy debates will have a series of implications not only for individual taxpayers, but could put further pressure on state budget and tax policy decision making, forcing state lawmakers to either make further funding cuts to vital state services or raise revenues, Fry said.

Fry’s comments were followed by an update on the state budget by Sen. John Stinner, chair of the Appropriations Committee, who noted that state revenues continue to trail projections and this could lead to more budget cuts when the Legislature convenes in January.

Factors such as changing demographics, untaxed internet sales and previous tax cuts are contributing to Nebraska’s revenue problems, Stinner said.

Planning committee looks to challenges of the future

During a panel discussion on changing demographics and the work of the Legislature’s Planning Committee, Jerry Deichert, Director of the Center for Public Affairs Research at the University of Nebraska Omaha, noted that our population is:

  • Becoming more concentrated in its most populous counties;
  • Getting older and will continue to age; and
  • Becoming more racially and ethnically diverse.

As planning committee members discussed what these demographic changes could mean for state policy, Sen. Tony Vargas said that the growing number of immigrant children in Nebraska increases the need for high quality early childhood education. Meeting this need will be essential in preparing our state’s future workforce for success.

Planning Committee Chair Sen. Paul Schumacher and other panel members referenced a Legislative Fiscal Office list of tax changes passed between 2006 and 2015 as they talked about the possible need to reform tax breaks to meet future challenges.

Kansans pass on lessons and experiences from tax cuts

During a panel discussion on Kansas’ income tax cuts, Rep. Melissa Rooker, a Republican member of the Kansas House of Representatives, described a shift in message among tax cut advocates in the wake of the tax cuts. When the tax cuts passed, Rooker said, advocates promised the state would see a shot of economic adrenaline. Years later, these advocates were begging for more time to let the economic benefits kick in as budget damage mounted.

Devin Wilson of Game On For Kansas Schools — a group that works to protect school funding in Kansas — said Kansans were told that the budget damage would eventually subside and give way to growth, but that never occurred.

In the end, Rooker noted that the budget damage caused by the tax cuts cost lives as the revenue losses ravaged services like corrections, education and roads.

Panel discusses drawbacks and virtues of Nebraska business taxes

During a panel discussion on business taxes in Nebraska, University of Nebraska Law Professor Adam Thimmesch, whose research focuses on tax policy, recounted a time when he brought a business owner to speak to one of his classes.

A student asked the owner why he kept the business in Nebraska. The owner discussed things such as the work ethic and humility of Nebraska workers. Taxes incentives were never mentioned as a factor, Thimmesch said.

Randy Thelen of the Greater Omaha Chamber of Commerce noted that while the chamber doesn’t lead with business incentives when approaching businesses about locating in Nebraska, incentives are important in ultimately getting a business to set up shop in Nebraska.

Thimmesch and former Tax Commissioner Kim Conroy said the tax exemptions the state offers business are eroding the state’s tax base and this has an effect on tax rates.

While discussing the political pressure that often leads to tax breaks becoming law, former Nebraska Tax Commissioner Kim Conroy said, “Good tax policy and good politics are often not the same thing.”

Robert Zahradnik of the Pew Charitable Trusts noted states struggle to tell if business incentives are sound investments because tax breaks aren’t subject to regular review in the same manner regular government spending is by way of the appropriations process. However, Zahradnik said, efforts in Nebraska and other states to improve transparency and review of tax breaks will help states better determine if the tax breaks are worth the investment.

Ballot initiative and school funding the focus of property tax panel

During a panel on previous efforts to lower property taxes, Nebraska Farmers Union President John Hansen gave an overview of various ballot initiative measures in Nebraska that were aimed at lowering property taxes. Most of the measures were voted down by Nebraskans, illustrating the difficulty of passing tax legislation via the ballot. Hansen’s comments came at a time when some in Nebraska are talking of another ballot initiative aimed at lowering property taxes.

Former Sen. Bob Wickersham said the implementation of the state’s school funding formula — the Tax Equity and Educational Opportunities Support Act (TEEOSA) — was initially successful in helping reduce property taxes and this contributed to the state reaching a “high-water mark” for property-tax relief in 1998. TEEOSA, other efforts to increase aid to local governments, caps on property tax levies and local government spending, and improved assessment processes combined to effectively bring down property taxes, Wickersham said. Since then reductions to TEEOSA Aid, elimination of aid to other local governments, steep rises in agricultural land prices and other factors contributed to increased property taxes.

In response to comments about school spending, Wickersham recommended attendees read a 2015 report from the Legislative Fiscal Office. The report found that school spending growth is at its lowest level in 30 years and that issues such as a shift in population from rural to urban areas and fixed costs in districts with declining population are having a major impact on Nebraska’s average per pupil costs.

Legislative candidates urged to learn the committee process, build bridges

During a panel for legislative candidates, former Sens. Annette Dubas and Mike Gloor and current Sens. Roy Baker and Laura Ebke offered insight to candidates about working in the Unicameral. In their comments, they urged candidates to:

  • Become familiar with the importance of the committee process and legislative rules;
  • Prepare to be publicly questioned on an assortment of issues that you may not know much about presently;
  • Work to build bridges with fellow senators; and
  • Lean on and value the contributions of legislative staff members as they often have vast experience and expertise that will be essential in one’s success as a lawmaker.

Download symposium documents and materials

More documents from our symposium, including a slide show featuring Jerry Deichert’s demographic changes presentation and Greg LeRoy’s keynote presentation, can be downloaded here.

OpenSky statement on the federal tax framework

For immediate release — Sept. 27, 2017

LINCOLN — The following is a statement from OpenSky Executive Director Renee Fry regarding the tax framework introduced Wednesday by President Donald Trump and congressional Republicans:

“While significant uncertainty remains about how the federal tax framework would affect Nebraska, tax changes always result in winners and losers and most analyses to-date find that the wealthiest individuals and corporations would benefit the most from the proposed package. Federal tax changes could also put increased stress on our already strained state budget and lead to more cuts to education, health care and other services that Nebraskans need. Furthermore, elimination of itemized deductions could have serious implications; for example, eliminating the deduction for local taxes could exacerbate the stress of property taxes on Nebraska’s property taxpayers. With so much uncertainty regarding the tax changes and their impact on our state and its residents, it will be important for both federal and state policymakers to proceed cautiously, taking care to understand the full effects of any tax plan.”

Contact Chuck Brown at 402-610-1522 or cbrown@openskypolicy.org for more information.

Slides and other symposium documents available for download

Thanks to everyone who attended Thursday’s Fall Policy Symposium! We hope you found the event as informative and enlightening as we did. The following documents from the symposium are now available for download:

A larger recap of the symposium will be published soon.

Greg LeRoy: Talent pool more important to businesses than tax incentives

Good Jobs First’s Greg LeRoy has been featured prominently in recent media coverage around the Amazon announcement that it’s seeking a site for a new headquarters.

LeRoy, who will be the keynote speaker at OpenSky’s Fall Policy Symposium next Thursday (Sept. 21), is one of the nation’s foremost experts on business incentives and has been quoted in several media stories regarding the role business incentives might play in Amazon’s location decision.

In this Sept. 12 story from the Pittsburgh Post-Gazette, LeRoy said he doesn’t believe business incentives will be a major factor for Amazon as state and local taxes typically only make up about 2 percent of company’s cost structure.

“Incentives are almost never determinative of where companies expand or relocate because they’re too small,” LeRoy said.

The key factor in securing the new headquarters and the thousands of new jobs that will come with it, LeRoy said, will be access to plentiful workforce talent.

“If you’re going to hire that many people, you need a really big labor market,” LeRoy said, adding that if he were advising a mayor looking to land Amazon’s new headquarters, “The only thing I would focus on is the executive talent pool.”

During his presentation at our symposium next week, which will start at 11:15 a.m., LeRoy will discuss the research he and Good Jobs First do regarding business incentives. Reserve your seat for the symposium, which will run from 8:30 a.m. to 2:30 p.m. at the Graduate in Lincoln.

Venue changed for OpenSky’s Fall Policy Symposium

Register today for OpenSky Policy Institute’s 2017 Fall Policy Symposium, which will now be held at The Graduate at 141 N. 9th St., in Lincoln on Thursday, Sept. 21 from 8:30 a.m. to 2:30 p.m.

The Graduate building was formerly the Downtown Holiday Inn.  Check-in starts at 8 a.m.   Registration is $25 and includes lunch but is free for elected officials, legislative staff, OpenSky donors and members of the media.

There is limited parking available for $5 onsite at the south end of the hotel and other paid garage and street parking is available nearby as well.  Greg LeRoy of Good Jobs First will be our keynote speaker. Greg is one of the nation’s foremost experts on business tax incentives. There also will be presentations and panel discussions about:

  • Nebraska’s changing demographics and what they mean for state policies;
  • Lessons learned from Kansas’ experience with tax cuts;
  • Nebraska’s business taxes; and
  • Past property tax reform efforts in Nebraska.

Following the symposium, there also will be a panel discussion for legislative candidates featuring current and past Nebraska lawmakers, titled “What I Wish I Had Known as a Candidate.”  Reserve your seat today! Contact OpenSky Office Manager Toni Roberts at 402-438-0382 or troberts@openskypolicy.org for more information about the symposium.

Tax incentive report hearing today, OpenSky on the road next week

Department of Revenue officials will present at a joint hearing of the Legislature’s Appropriations and Revenue committees this morning to discuss a report on the state’s business incentive programs.

The hearing starts at 10 a.m. in the State Capitol, Room 1113 and will be streamed online by NET Nebraska. OpenSky will provide updates from the hearing on our Twitter page.

Also, next week OpenSky will visit several Nebraska cities including Gothenburg, Lexington, Grand Island, Kearney and North Platte to present to service groups, media members and others. We hope to see some of you while we are on the road!

OpenSky welcomes new fiscal policy analyst and Weitz Fellow 

OpenSky is happy to announce that Elizabeth Gleason has joined our staff as our new Fiscal Policy Analyst and Lillie Cox has joined our team as a Weitz Fellow.

Prior to joining OpenSky, Elizabeth — a Nebraska native — worked as a research analyst at the University of Maryland. Elizabeth has a master’s degree in public policy from the Humphrey School of Public Affairs at the University of Minnesota and a bachelor’s degree in political science from the University of Nebraska-Lincoln.

Lillie is a recent graduate of Carleton College in Northfield, Minn. Prior to her graduation, Lillie served as an education fellow at Carleton’s Center for Community and Civic Engagement and as a tutor in the Northfield Reads and Counts program.

She also was an intern for a U.S. Congressman and a U.S. Senate campaign. The Weitz Fellowship Program is supported by the Weitz Family Foundation of Omaha and places recent Carleton College graduates in positions with non-profits in Lincoln and Omaha.

Save the date — OpenSky Fall Policy Symposium set for Sept. 21!

We’re excited to announce that OpenSky Policy Institute’s 2017 Fall Policy Symposium will be held Thursday, Sept. 21 at Nebraska Innovation Campus, 2021 Transformation Drive in Lincoln.

We’re happy to have Greg LeRoy of Good Jobs First as our keynote presenter. LeRoy is considered one of the nation’s foremost experts on business tax incentives.

Further detail about the event will be announced in the coming weeks, but we want you to mark your calendars so that you can plan to join us at the symposium.

We hope to see you on Sept. 21!

Updated budget primer available online

Download an updated copy of our budget and tax primer, “Looking for Clarity: An Overview of Nebraska Budget and Tax Policy.”

The easy-to-read primer – which was updated recently with the most current state fiscal date — takes the confusion out of Nebraska’s laws and tax codes and distills it into a concise, manageable summary of how Nebraska collects and spends funds.

Looking for Clarity offers an unbiased look at Nebraska’s budget. OpenSky has combined information regarding the budget process, state spending, state revenue, and tax expenditures in one place. Helpful visuals and real-world examples illustrate where taxpayer dollars go.