Blueprint Nebraska’s Jim Greisch on Nebraska’s Missing Tax Relief
CPA Jim Greisch discusses why more than $50 million in property tax relief credits have gone unclaimed so far, and the alternatives offered by Blueprint Nebraska’s tax modernization plan. A transcript of the discussion is available below.
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Jim Vokal: Nebraskans have been promised a historic amount of property tax relief. The problem is, a lot of people don’t seem to know how to get it. With tens of millions of dollars so far being left on the table, Jim Greisch is here with me today to discuss the problem. He’s done his share of tax returns in a long career of public accounting and he’s put those talents to work as chair of the Blueprint Nebraska Taxation & Incentives Industry Council. Jim, welcome to Nebraskanomics.
Jim Greisch: Thank you, Jim, happy to be here.
Jim Vokal: All right, let’s just dive right into it. The Legislature recently promised property taxpayers that they would cover more of the cost of their school district taxes by issuing $125 million in refundable income tax credits starting this year. I don’t think that there’s many people who wouldn’t want to get some of their money back, yet the Omaha World-Herald reported recently that more than $50 million of that money has gone unclaimed. Jim, how and why do you think this possibly happened?
Jim Greisch: Well, Jim, I think there are several reasons that some of the money has gone unclaimed. First, I think amongst the general population, who you know are preparing their own tax returns, you know there’s a general misunderstanding about what a refundable or a non-refundable credit is. The complexities of returns hasn’t diminished over time, and you know, regular folks who are doing all of this on their own often read things like “there’s a refundable credit available to me” and they don’t really understand, you know, what that means in plain English.
For the tax preparers, the complexity of claiming the credit on behalf of a single taxpayer, a married couple filing a return, it’s not difficult. You have to link to it the right place, and once you have that, it’s relatively easy. But for a, you know, multi-multi-taxpayer entity, a pass-through entity, maybe with 50 or 100 partners—think of an ethanol plant maybe with, you know, 5,000 taxpayers—the amount of the allocated credit, yeah, really difficult to determine. A challenge to allocate, you know, in a meaningful basis. Frankly, at some point, the juice is not worth the squeeze, and people simply give up as a result, and you know, that leaves a lot of money on the table.
I think there’s an overriding factor. [Legislative Bill] 1107 was passed in the last legislative session. It came into being for the first time last year, with tax returns filed here in 2021. And I think we simply experienced a little bit of COVID fatigue on the taxpayer’s part. You know, they just said “Look, I’m not even gonna look—it’s not gonna be worth it.” The rest of the credits that I’ve gotten haven’t been worth it. And you know, oh by the way, I’ll wait to see how this plays out next year.
Jim Vokal: Yeah, so you mentioned we’re talking about LB1107 which was also called the Nebraska Property Tax Incentive Act, which was passed in 2020. It was a compromise that put together three major pieces of economic legislation: a new property tax relief program, reauthorization of the state’s business incentive program, and then approval of a state funding match for a federal medical facility at the University of Nebraska Medical Center. I mentioned all these to highlight that almost everybody in the Legislature end up voting for this tax program because they all wanted part of the package and couldn’t reach agreement on anything else. And this is not even the first expensive and ineffective property tax program to come out of Lincoln, as you and I both know.
Here’s the bigger question: How do we get lawmakers to stop taking the path of least resistance and focus on a policy that actually works and changes the system?
Jim Greisch: Yeah, Jim, so that’s the $64,000 question that besets, you know, all of government, right?
I think the challenge that that all of the interventions that the state has had in the property tax arena center around a single issue, and that’s the we’re not solving the problem at the root cause of the issue, and consequently the interventions that happen at the state level become complex and ill-conceived. There’s a good intent, but you know, it’s not really solving the problem, and taxpayers…look at the issue and say “Well, okay I got a $38 credit here, that’s fine, there’s nothing bad about it,” Or a hundred dollar credit, but you know, next year my property taxes are still going to go up because at home the mill levy rose, the valuation rose, and the $38 has no meaningful impact on what my local governmental organizations are seeking from me as taxpayer to fund the functions of government.
Until we take a look at the root cause of what’s happening back in each of the provinces that levy taxes here in the state of Nebraska and find out a way to reduce the amount of property tax recovered, find other systemic solutions that fund the government through other sources that could be more resilient, or would be better understood by the population—the taxpaying population, actually all the population—we will continue to have this problem. You know, there’s a unique issue associated with property taxes. Property taxes are only levied on those who own property, and there are a lot of folks in you know in the state who as renters—of course they pay a tax through the rent that they pay—but they don’t see the consequence of the issues at the local governmental level. There are other methods that we could use to fund government. I think we have to look for those in order to solve the problem in a different way.
Jim Vokal: Yeah, rates don’t go down with this tax credit program, valuation increases don’t stop, and political subdivisions aren’t stopping spending the windfall associated with the valuation increases. That’s been our message certainly. So thanks for focusing on that. So, the Legislature has committed $125 million towards this program and also committed to increasing it to $548 million. We’ve just talked about how hundreds of millions of dollars, or tens of millions I should say, of unclaimed credits are not being utilized. What type of system, or what could we be doing for taxpayers, with that kind of cash instead to fundamentally lower their taxes, Jim?
Jim Greisch: I think a lot of it has to do with the implementation mechanisms, Jim. I think a simpler, more elegant way of getting cash back into the hands of property owners is not to have it refunded through an income tax program. The complexity of that alone is going to deter many from asking for the credit again in 2021, notwithstanding the fact that it’s going to rise by five-fold. In prior programs, you know, a credit was actually applied to your property tax statement. There are many, I’m probably one of them, who believe that that’s the simplest and most effective way of accomplishing the distribution of the funds, because it doesn’t require the taxpayer then to file a return to seek the credit to go through the administrative exercise of seeking an amount to claim on their on their income tax return. The skeptic in me says the complexity of that was designed intentionally, to reduce the use of the credit. That’s very unfair, of course, and I recognize that. But, you know, it’s a mechanism of slowing the amount of cash that flows out of state government. I don’t think you’re going to see 100% utilization going forward. The state Society of CPAs wrote a wonderful piece about the complexity associated with this, and I think they’ve very accurately said many of their clients simply said “You know, it’s gonna cost me $1,000 to get a $100 credit? Let’s stop.” I don’t think the [Department of Revenue] thought through all the possible ramifications of the mechanism they chose. Admittedly, you know, it is one that requires the taxpayer to take some affirmative steps to claim the credit, and there’s there is some good in that, there is some wisdom in that, but that there’s a point at which the complexity and the difficulty outweighs the benefit. I’d go back if it were up to me and make it taxpayer-uninvolved, meaning, you the taxpayer simply gets a statement with a credit applied, pays the net balance, and people move on.
Jim Vokal: Well let’s talk about how much is allocated in the budget for these credit programs that are intended to offset property taxes. We’re going to hit $1 billion here pretty quickly, and some members of the Legislature have commented that Nebraska doesn’t get enough credit for these tax relief programs, either from constituents or from groups that compare states by their tax climate. So I’m asking you to put your Blueprint hat on here a little bit. Can you explain why our tax relief programs that exist now don’t end up impacting Nebraska’s tax competitiveness relative to other states?
Jim Greisch: Well sure, there’s a real simple reason, and that’s that they’re not measured in any of the metrics that are employed by Tax Foundation or others that rate states against one another. They’re not provided in the numbers that are reported by the [Department of Revenue] and therefore they don’t exist in the mind of the people who match us up against one another. More directly, I think the programs are a state intervention in a system of property taxes that isn’t the responsibility of the state. So, when folks think about property taxes, there isn’t a state involvement in that, and you know, any of these programs—wouldn’t make any difference which state it is—they’d all be treated the same. They’re not a part of what the Tax Foundation is looking at. Tax Foundation is looking at the things that are within the control of the state, and what’s in control the state are income tax rates and sales tax assessments.
Property taxes are local governmental interventions and local governmental programs, and an intervention by the state in any of those programs simply doesn’t hit the radar of the Tax Foundation or any of the other rating groups, you know, Money Magazine—take your pick. It doesn’t really make any difference. Consequently, the value that may be there is not ever going to get recorded, reported—credited if you will—in the same way as an income tax reduction does, or a sales tax reform does, or other incentive programs may. This is not considered an incentive program in the same definition as some of our traditional programs, think [Legislative Bill] 775 and all of its descendants.
Jim Vokal: So, in addition to more than $50 million currently headed back to the General Fund, state revenues we learned last week are still coming in strong in Nebraska. The Economic Forecasting Advisory Board projected a $475 million boost to state tax receipts through this fiscal year, which is a jump of about 10% over past estimates. Now, that’s obviously real money there, are even some taxes we could eliminate in Nebraska for [not] much more than $475 million, as you and I both know.
But as I’ve told listeners before on this Nebraskanomics podcast, even in great revenue years, lawmakers often punt on tax reform because of worries the tax receipts won’t hold up and be sustainable, or because the strong receipts lead senators to try to squeeze all they can out of current funding to avoid the difficulty of what you and I would like to see—which is a major overhaul to the tax system. So you’ve led the process of designing the Blueprint Nebraska tax modernization plan. which seeks to broaden the tax base and lower tax rates for the workforce talent our state needs. Why do you think the Blueprint framework offers a better lure than a property tax credit program?
Jim Greisch: Well, Jim, I think there are several reasons. So, one of the things that Blueprint and our committee sought to prove was the hypothesis that state government, and frankly other governmental entities, could be funded through other mechanisms that would provide a more stable and sustainable tax base to fund the basic functions of government beyond what property taxes have historically been believed to offer. Now, property taxes are a necessary part of any program, because services are rendered where people’s feet are on the street and they should be paid by the taxpayers who use those services in the local jurisdictions, in the manner in which they as citizens inform their government that they want the services to be provided.
The popular myth is that property taxes represent the most stable and repeatable form of tax revenue, and therefore they are the preferred mechanism. We’re one of a few—only a handful of states really very few–that rely to the extent that we do on property taxes as a stable mechanism of funding government. The fact of the matter is that other forms, notably sales tax, have been proven to be far more resilient than anyone ever thought that they would be as a form of funding governmental activities. Consequently, the hypothesis that we could fund government through other means was a necessary one that had to be proven. The Blueprint team proved that, in fact, though there are other mechanisms, other forms of taxation that can be used to fund functions of government, and provide a highly stable in fact, I would argue much more stable form of taxation going forward.
And because we have the broadest possible participation in sales tax, you know we’ve reduced regressivity to an extremely low level, thus making it extremely attractive. So I do think that what Blueprint is offering is a different design to fund government across the state both at the state level and at the local level that would provide citizens with significant property tax relief and would put the decisions regarding choices that have to be made when goods and services are purchased in the hands of the ultimate consumer, which I think economics would tell us, and the economists would tell us, is clearly the preferable place for the decisions to be made.
We think—the Blueprint team that is—thinks that these alternative means actually provide us with a mechanism by which to return value to the taxpayers of Nebraska in a significant way. And in returning that value to Nebraskans in a significant way, we can provide a much greater incentive to business to relocate here to Nebraska, where we know the Good Life is a part of what we offer. And we can show it to them in an economic manner going forward.
There are all kinds of other things, Jim, that go into looking at making fundamental systemic change in tax policy, and one of the greatest impediments is unfortunately, the inertia of doing nothing. There is a worry, I’ll describe that as my worry, that the Legislature won’t want to take on the major task of an overhaul because doing little bits around the edges is much less difficult and it’s much easier to do. And they can look to things like a $475 million dollar boost in revenue as being the reason that we don’t need to do anything. I’d argue the opposite. Those one-time infusions really say that there’s something systemically at issue, in the core of the policy that needs to be addressed, and now is the time when you have the money to take the bold and principled steps that give us a much brighter future for, particularly the young workforce that we’re looking to attract in Nebraska, the 18- to-34-year-olds, and gives us an opportunity to really do something that will be—for the next 50 years—a much more stable and productive foundation on which to build our state’s economy.
Jim Vokal: Jim, isn’t there also a danger—I hear some chatter out there from policymakers and others—to make a one-time reduction in an income tax rate with this extra cash that’s come through, isn’t there a risk going forward that we don’t have a committed, sustainable funding source for that reduction?
Jim Greisch: Absolutely, of course, and you know I think all these one-time fixes are just another way of saying we don’t have the will nor the leadership strength to go about doing what we know needs to be done, which is modifying the policy at its core, in order to provide a stronger base for the future of Nebraskans.
Jim, the Legislature, it has its own kind of life—you know this very well. And the motive for change needs to emerge from the population. I think the challenge that Blueprint faced, and I think the challenge that all of us have faced, looking at the tax overhaul is “where’s the will to improve the future coming from?”
We kind of get distracted with all of the issues of the moment and we forget that, at its very core, in any state—our state in particular—will only thrive if we’ve done things that put the economics of the enterprise, the state, front and center. And really look at ways in which we can improve the manner in which things happen in the state, and the transformation from raw materials into finished products, into population in the state, you know, looks different going forward. Because, you know frankly, if we look at what we are we’re operating on—a 1960s platform of taxation—and the really smart folks who look at these things across the country and rank us, like you know, you’re not really looking very much into the future for a way to make Nebraska better, and that hurts.
And sometimes, it’s not the numbers, it’s the chatter. And, you know, the Legislature, I think, simply needs to step up and take the bull by the horns, look at the opportunity and the results. Because I think the Blueprint plan has proven the hypothesis. Is it perfect? Of course not. You know, is it the plan? No, it’s a plan. It’s the one that puts a ball in play. Let’s have the conversation, let’s engage in the dialogue, let’s find the solution that Nebraskans think is right. And our travels around the state, and you’ve done it, so have I, along with Jim Smith and many others. You know, there’s a good bit of excitement brewing about the opportunity to take the bull by the horns and do something different for the future.
Jim Vokal: Yeah, meanwhile, if we sit idle, we’ve watched other states over the last decade figure it out and make their state more attractive and attract the population and growth that comes along with fundamentally changing your tax system, correct?
Jim Greisch: Oh yes, absolutely. I mean, half dozen last year, and you know more on the horizon. The things that Blueprint is suggesting are not radical. We’ve had others who have proven that pieces of the puzzle work. Now, the way I think we put it together is unique for Nebraska, as it should be. But the individual solutions are not particularly eye-popping or radical when looked at individually in isolation, it’s the benefit of doing them together that has the allure for the future, and it gives us a really positive way of posturing Nebraska for the 18- to 34-year-old workforce that we desperately need to grow in Nebraska. And gives us a foundation on which to grow our economy in a very unique way using the tools and the pieces of the economy that are emerging today and in the future. It’s really more about the future than it is today. The suggestions that are in the Blueprint report give us an opportunity to capture opportunity differently going forward as they emerge, and that is extremely exciting for the younger generation. You know, the folks with whom I visited across the state, they’re all thinking about what they want to do three, five, seven years in the future. Well, you know, our tax policy has to facilitate that.
If we by contrast facilitate an anchor three, five, seven, or in our case 50 years in the past, you know that’s not very attractive to a young entrepreneur. It’s not very attractive to a young family. It’s not very attractive, frankly, to anyone that we want to keep in the state. Because, you know, the [tax] rates that we’re extracting for participation in our state greatly exceed the benefit that the participant derives.
Who’d do that? It doesn’t take a degree in economics to figure out that if the return is not worth the investment, you don’t make the investment. And I think in our case, we’ve proven that the investment has a an extremely positive return through the Blueprint modeling that’s been done, and now is the time to make that investment so that we can start capturing the return going forward.
Jim Vokal: Well said, Jim, and thank you for your leadership on the Blueprint taxation committee and thank you for joining us today on Nebraskanomics.
Jim Greisch: My pleasure, thank you.