Legislative Testimony for LB69: Provide income tax credits for caregivers as prescribed

Good afternoon, members of the Revenue Committee.  I am here to speak briefly in a neutral capacity on the proposal to create a tax credit for Nebraskans who provide care in their own home for someone who is mentally or physically unable to care for themselves. 

This is an important discussion to have as the committee considers how to address property tax reform this year.

The Platte Institute’s intent is not to weigh in on the individual merits of this proposed tax credit. Instead, our goal is to encourage lawmakers to consider how to properly structure Nebraska’s tax code to reduce the demand for tax expenditures, as well as to limit and prioritize the use of tax expenditures.

Because it is far easier to adopt credits, deductions, and exemptions that appear small than it is to enact broad-based tax reforms, past Revenue Committees have been much more inclined to use these policies, which target specific groups or sectors of the economy.

However, while tax expenditures often lower tax costs for targeted groups such as those providing care to those most needy, the cost of these tax breaks is then borne by other, non-favored groups which bear a correspondingly higher tax burden. 

Of course, all states will fall short of an economically ideal tax code in some way. Many tax expenditures are popular despite the fact that they contribute to higher tax rates that taxpayers also dislike.

In general, our advice on tax expenditures would be the same as regulatory red tape or job licensing: members of the Legislature should be reviewing these policies, which the Department of Revenue includes in its Tax Expenditure Report, and working toward a system with fewer barriers for everyone.

Many governments now require a slimming-down of regulatory codes, where several ineffective regulations are repealed as new regulations are adopted. It would benefit the state in the long-term to adopt a similar attitude to tax expenditures. By eliminating inefficient tax expenditures where possible, the savings can be used to make improvements to the overall tax code.

We make the assumption that along the way, some tax expenditures are going to be adopted for one reason or another. And under those circumstances, it’s even more important to prioritize and discard some expenditures if the committee believes a new one is really valuable for the state to have.
 
The best way to determine which tax expenditures truly add value is to consider their economic or public policy rationale.

For example, if providing this tax credit to those whose income is less than 400% of the federal poverty level and who provide care for a person who is mentally or physically unable is a way to lower the cost or increase the efficiency of other public health programs, then this is a worthy tax credit to consider adding to Nebraska’s tax code. If it does not aid other public health programs or reduce overall costs, that should be considered before adoption of this new tax credit.

There are many aspects to the issues of tax expenditures that deserve a longer discussion, but if policymakers work to make the tax system less of an economic consideration for Nebraskans, it can help to reduce the justification for increasing tax expenditures.