TESTIMONY OF THE CENTER FOR RURAL AFFAIRS
Members of the Revenue and Education Committees, my name is Traci Bruckner, Senior Policy Associate for the Center for Rural Affairs in Lyons, Nebraska. I am here to provide input pursuant to Legislative Resolutions 332 and 344.
Rooted in rural Nebraska with a 40 year history, we understand the challenges facing farmers and ranchers. In testimony to the Tax Modernization Committee we agreed that property taxes are too high and local government entities are too reliant on property taxes. While we recognize farmers and ranchers often bear the greatest burden, our mission is not to represent the interests of one group. Our mission is to support policy that builds strong rural communities and provides opportunity for all rural people.
In 1992 our organization conducted a comprehensive study that examined our state’s tax system. We identified strengths and weaknesses and made recommendations for improvement. We were disappointed to find that in 2015 many of the exact same inadequacies that were crippling then are still in place today. Today, as in 1992, we put forward three recommendations that will result in more equitable funding of our K-12 education system:
1. Use targeted relief to reduce reliance on property tax to no more than one-third of K-12 revenue.
We need to rebalance the three-legged stool. Currently 48 percent of education funding is sourced through property tax. Relief should be targeted to those who need it most - modest owner-occupied homes and owner-operated farms of modest means. We need to refocus the property tax relief fund by enacting a maximum reduction, or use it for a circuit breaker tax refund.
2. Make the overall tax system less regressive.
This is achieved by reforming individual and the corporate income tax structures and increasing the share of total revenue which comes from income tax. We recommend considering a school funding surtax, calculated by multiplying a person’s state individual income tax liability by a set percentage. A 5% school funding local income surtax results in approximately $100 million of additional local revenue.
3. Broaden the tax base.
In a service-oriented economy it is unrealistic to ignore the sales tax base represented by the service sector. Modernizing sales tax to include services purchased by households could create an additional $194 million of revenue to offset reliance on property tax. We should exclude taxing services that most directly impact low and moderate income families or consider offsetting this impact through a low-income credit.