EPIC Fights Back
Last week we reported an attack from the Washington D.C.-based think tank, Tax Foundation, on our Nebraska Team for proposing a state equivalent of the FAIRtax nicknamed “EPIC.” EPIC, an acronym for “Eliminate Property, Income, and Corporate Taxes,” is a state-level proposal to replace these taxes at all levels of state government in Nebraska with a FAIRtax-style consumption tax. You can read the Tax Foundation’s criticisms here: https://taxfoundation.org/research/all/state/nebraska-epic-option-consumption-tax/#:~:text=The%20EPIC%20Option%2C%20which%20stands,low%20rate%20of%207.5%20percent. The principal argument of the Tax Foundation was that the EPIC rate calculation was too low.
Our Nebraska FAIRtax team leader, Rob Rohrbough, answered them. Rob wrote:
In an article published on March 14, 2024, the national conservative economic think tank, Tax Foundation, took a stance in line with the left-leaning, Open Sky Policy Institute, to criticize the EPIC Option tax proposal. The EPIC Option proposal (EPIC) is as follows:
1. EPIC Option proposes to Eliminate Property, Income, and Corporate taxes in Nebraska. Inheritance taxes will be eliminated with income taxes. Corporate taxes refer to all business taxes. It further proposes to replace the current state sales tax with a consumption tax on new goods and services at the retail level.
2. The proposed rate of 7.5% is based on a dynamic model constructed by the Beacon Hill Institute of Medway, Massachusetts. The model has been praised by such luminaries as Stephen Moore, Distinguished Visiting Fellow, Institute for Economic Freedom, The Heritage Foundation.
3. The proposal is to replace the state sales tax, not local sales taxes. So, local taxing authorities will have the ability to impose their own consumption tax. The rate is expected to be much lower than current sales tax rates because they have much less revenue to replace than on the state level.
4. Because the EPIC plan eliminates all business taxes, not only can Nebraska businesses expect to be the most competitive in the nation, Nebraska retailers can expect to win the so-called “border bleed” battle because their retail products will not have those business taxes hidden in their prices.
5. Just think of the business expansion in Nebraska as companies from all over flock to Nebraska to enjoy not being taxed! Because the EO plan proposes to add no new taxes to the cost of retail products, but only expose the hidden taxes already there, the resulting low rate will create a retail boom in Nebraska.
6. A retail consumption tax puts Nebraska State Government in the same pricing boat as Nebraska retailers. If they impose a tax too high, their net revenue will go down as shoppers go elsewhere. This puts a more effective cap on the cost of government than any plan driven by Nebraska legislators.
7. The current tax plan makes effective serfs out of Nebraska residents, farmers, and ranchers. EPIC restores property rights to all Nebraskans by taking away the implicit rent to the state for their homes, farms, and ranches. The ag sector is Nebraska’s largest industry. This move will allow resident farmers and ranchers to enjoy a larger net revenue, taking away their sad decision to sell in lean times or when their farm or ranch could be passed to the next generation. The result is a much more difficult invasion of our state by out of state investors, foreign or domestic.
Furthermore, elderly homeowners can no longer be forced to rent or move out of state when valuations rise 20% or more.
The Tax Foundation claims are flawed to the point that one wonders if they read our plan or the study behind it:
The proposed rate [by the Tax Foundation] is based on flawed calculations that do not reflect the tax base defined in the underlying proposal.
This claim is based on their calculations assuming no expansion of the base at all.
Tax Foundation calculations suggest that the EPIC plan would require a statewide consumption tax rate of 21.6 percent or more.
How can this be when the tax base more than doubles? Even if the tax base remained at the current level, the resulting tax rate would be 19.5%.
The EPIC Option does not prevent local governments from enacting consumption taxes, meaning the total rate could be much higher than advertised.
This is pure speculation. Local governments are replacing only their existing local sales tax. Property taxes already have been factored in with our proposal. Since our plan more than doubles their base, they should be able to replace their existing sales tax rate by a consumption tax of less than half the rate. Taxpayer pressure will force them to do so.
EPIC would likely result in substantial cross-border shopping, allowing Nebraskans close to a border with a lower sales tax state to avail themselves of the lower rates while leaving taxpayers in the interior of the state to bear the brunt of the newly established consumption tax.
Of course, using their assumptions Nebraska would lose the border bleed war. However, it is their calculations that are flawed based on bad assumptions about the tax base. Even if another economist, using different assumptions were to come up with a different rate, it would not disagree with the Beacon Hill study by a factor of three. If their rate differed even by three percent, their rate still would be under 11%. This is crucial as studies show that a heavier reliance on sales taxes rather than property or income taxes tend to result in higher growth for states.
Even at 11% Nebraska will win the border bleed battle. Why? Because every cent we add to the tax rate replaces hidden taxes from business. Since we remove business taxes, businesses will flock to the state. Not only will Nebraska businesses be the most competitive in the nation, shoppers will come from surrounding states to avoid paying those hidden taxes and the sales taxes the surrounding states impose on top of them.
The anticipated economic benefits of the proposed tax overhaul are unlikely to materialize under such a high consumption tax rate.
EPIC will not invoke such a higher rate as discussed above.
Policymakers seeking to constrain property taxes have better-targeted ways to achieve these aims.
There is no legislation that will impose a more bulletproof cap on state spending than a consumption tax only. Short of a constitutional amendment, any cap passed by the legislature can be changed the following year.
The Tax Foundation makes no consideration for the plight of homeowners on a fixed income.
The Tax Foundation primary criticisms of EPIC are based on their assessment of the rate. Are they correct? Common sense dictates that the rate cannot be wrong by a factor of three. Just keeping the same tax base as the current sales tax will result in a rate under 20%. We know that most services are not taxed, and yet we are living in a service-based economy. In fact, the exemptions on goods and services exceed the current sales tax base. The Open Sky Policy Institute, and now the Tax Foundation, proposes a rate that does not make sense.
Our Nebraska FAIRtax team leader, Rob Rohrbough, answered them. Rob wrote:
In an article published on March 14, 2024, the national conservative economic think tank, Tax Foundation, took a stance in line with the left-leaning, Open Sky Policy Institute, to criticize the EPIC Option tax proposal. The EPIC Option proposal (EPIC) is as follows:
1. EPIC Option proposes to Eliminate Property, Income, and Corporate taxes in Nebraska. Inheritance taxes will be eliminated with income taxes. Corporate taxes refer to all business taxes. It further proposes to replace the current state sales tax with a consumption tax on new goods and services at the retail level.
2. The proposed rate of 7.5% is based on a dynamic model constructed by the Beacon Hill Institute of Medway, Massachusetts. The model has been praised by such luminaries as Stephen Moore, Distinguished Visiting Fellow, Institute for Economic Freedom, The Heritage Foundation.
3. The proposal is to replace the state sales tax, not local sales taxes. So, local taxing authorities will have the ability to impose their own consumption tax. The rate is expected to be much lower than current sales tax rates because they have much less revenue to replace than on the state level.
4. Because the EPIC plan eliminates all business taxes, not only can Nebraska businesses expect to be the most competitive in the nation, Nebraska retailers can expect to win the so-called “border bleed” battle because their retail products will not have those business taxes hidden in their prices.
5. Just think of the business expansion in Nebraska as companies from all over flock to Nebraska to enjoy not being taxed! Because the EO plan proposes to add no new taxes to the cost of retail products, but only expose the hidden taxes already there, the resulting low rate will create a retail boom in Nebraska.
6. A retail consumption tax puts Nebraska State Government in the same pricing boat as Nebraska retailers. If they impose a tax too high, their net revenue will go down as shoppers go elsewhere. This puts a more effective cap on the cost of government than any plan driven by Nebraska legislators.
7. The current tax plan makes effective serfs out of Nebraska residents, farmers, and ranchers. EPIC restores property rights to all Nebraskans by taking away the implicit rent to the state for their homes, farms, and ranches. The ag sector is Nebraska’s largest industry. This move will allow resident farmers and ranchers to enjoy a larger net revenue, taking away their sad decision to sell in lean times or when their farm or ranch could be passed to the next generation. The result is a much more difficult invasion of our state by out of state investors, foreign or domestic.
Furthermore, elderly homeowners can no longer be forced to rent or move out of state when valuations rise 20% or more.
The Tax Foundation claims are flawed to the point that one wonders if they read our plan or the study behind it:
The proposed rate [by the Tax Foundation] is based on flawed calculations that do not reflect the tax base defined in the underlying proposal.
This claim is based on their calculations assuming no expansion of the base at all.
Tax Foundation calculations suggest that the EPIC plan would require a statewide consumption tax rate of 21.6 percent or more.
How can this be when the tax base more than doubles? Even if the tax base remained at the current level, the resulting tax rate would be 19.5%.
The EPIC Option does not prevent local governments from enacting consumption taxes, meaning the total rate could be much higher than advertised.
This is pure speculation. Local governments are replacing only their existing local sales tax. Property taxes already have been factored in with our proposal. Since our plan more than doubles their base, they should be able to replace their existing sales tax rate by a consumption tax of less than half the rate. Taxpayer pressure will force them to do so.
EPIC would likely result in substantial cross-border shopping, allowing Nebraskans close to a border with a lower sales tax state to avail themselves of the lower rates while leaving taxpayers in the interior of the state to bear the brunt of the newly established consumption tax.
Of course, using their assumptions Nebraska would lose the border bleed war. However, it is their calculations that are flawed based on bad assumptions about the tax base. Even if another economist, using different assumptions were to come up with a different rate, it would not disagree with the Beacon Hill study by a factor of three. If their rate differed even by three percent, their rate still would be under 11%. This is crucial as studies show that a heavier reliance on sales taxes rather than property or income taxes tend to result in higher growth for states.
Even at 11% Nebraska will win the border bleed battle. Why? Because every cent we add to the tax rate replaces hidden taxes from business. Since we remove business taxes, businesses will flock to the state. Not only will Nebraska businesses be the most competitive in the nation, shoppers will come from surrounding states to avoid paying those hidden taxes and the sales taxes the surrounding states impose on top of them.
The anticipated economic benefits of the proposed tax overhaul are unlikely to materialize under such a high consumption tax rate.
EPIC will not invoke such a higher rate as discussed above.
Policymakers seeking to constrain property taxes have better-targeted ways to achieve these aims.
There is no legislation that will impose a more bulletproof cap on state spending than a consumption tax only. Short of a constitutional amendment, any cap passed by the legislature can be changed the following year.
The Tax Foundation makes no consideration for the plight of homeowners on a fixed income.
The Tax Foundation primary criticisms of EPIC are based on their assessment of the rate. Are they correct? Common sense dictates that the rate cannot be wrong by a factor of three. Just keeping the same tax base as the current sales tax will result in a rate under 20%. We know that most services are not taxed, and yet we are living in a service-based economy. In fact, the exemptions on goods and services exceed the current sales tax base. The Open Sky Policy Institute, and now the Tax Foundation, proposes a rate that does not make sense.
We are fortunate to have a state leader like Rob on our team. Thank you for this rigorous defense of EPIC, the Nebraska state-level FAIRtax, which can serve as a model for other state FAIRtax proposals and push upward reform on the federal government.
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CALL FOR PICTURES AND WRITEUPS
We need more of you to send in pictures and news. If you have something to share, please send your material to me, jim.bennett@fairtax.org, (908) 578-4975, or fax (908) 598-2888. When others see your activity, they are inspired, and the process snowballs. When the process snowballs, Congress Members, Senators, and even the President start to listen.
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AFFT Grassroots Coordinator & Secretary🇺🇸 Call For Pictures & WriteUps - When others see your activity, they are inspired, the process snowballs and Representatives, Senators and, yes, even the President start to listen to you and me. Please send your material to me at Jim.Bennett@FAIRtax.org.
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