If Nebraskans can’t agree on reforming their current income, sales or property taxes, state Sen. Steve Erdman of Bayard has a sweeping answer:
Get rid of them all.
Income and property taxes in Nebraska would be abolished — and the state sales tax replaced by a “consumption tax” to fund state and local governments — if a constitutional amendment spearheaded by Erdman were approved by lawmakers and voters.
The District 47 senator and District 43 Sen. Tom Brewer of Gordon lead a list of 10 original cosponsors — including three from the Omaha area — of Legislative Resolution 300CA.
It would need “yes” votes from 30 of the 49 senators on final reading to appear on November’s general election ballot.
Erdman, already the sponsor of a petition drive to force state income tax rebates equal to 35% of paid property taxes, introduced the proposal Thursday on the 2020 Legislature’s last day to offer new bills.
Though he still sees a purpose for his petition drive, Erdman said, his new amendment could cut through chronic opposition to fixing one or more legs of Nebraska’s three-legged fiscal stool.
He’ll keep seeking petition signatures because otherwise “there would be nothing to pressure the Legislature to do anything,” he told The Telegraph Thursday night.
Brewer, who has introduced a constitutional amendment (LR 284CA) to abolish state income taxes, said LR 300CA could gain momentum if foes of property tax relief again prevail this session.
Nebraska’s largest schools Wednesday opposed the latest version (LB 974) of a plan cosponsored by North Platte Sen. Mike Groene to relieve pressure on property taxes by significantly boosting state school aid.
That “really limits the possibilities” for any type of property tax relief, Brewer said. And if rural property taxes keep going up, “there’s no way to get around the fact that the agricultural community will collapse.”
If adopted, Erdman’s amendment would force the most sweeping change in state tax policy since voters in 1966 repealed both the state property tax — though not local property taxes — and an earlier version of a state income tax.
Left with no means to fund state government, the 1967 Legislature and then-Gov. Norbert Tiemann adopted the frameworks of the current state sales and income taxes. State aid to local governments also debuted that year.
LR 300CA, by contrast, says the state and all local governments would be “prohibited from imposing any form of taxation other than a single-rate consumption tax” as of Jan. 1, 2022.
Of all the state and local taxes currently permitted under Nebraska law, only sales, lodging and excise taxes — the latter including alcohol, tobacco and gasoline taxes — fit the generally understood definition of “consumption tax.”
Erdman’s consumption tax, however, would replace the current state sales tax.
LR 300CA would limit its application to “the consumption of new goods and services,” adding: “The Legislature shall be prohibited from granting any exemptions from such consumption tax.”
That means food items would be taxed for the first time in decades under the consumption tax, which the Legislature would have to adopt by the New Year’s Day 2022 date.
But Erdman proposed that a “pre-bate” — a monthly amount to be paid to every Nebraskan to help offset basic living costs — be enacted in subsequent enabling legislation.
Such a payment, he said, would apply the state consumption tax rate to current federal poverty income guidelines, which vary by the size of one’s household.
Nebraska’s state and local governments now collect a combined $9.5 billion annually in taxes, which would require a 10% consumption tax rate to replace, Erdman said.
Under the 2020 poverty level of $12,490, that means every Nebraskan living alone would receive a “pre-bate” of $104 a month. Every family of four — regardless of their actual income level — would get $214.50 a month.
That would especially help poor Nebraskans, who pay sales tax on many items even though they don’t pay it on food, Erdman said.
By limiting the consumption tax to new purchases by consumers, he said, used items and business-to-business transactions also would not be taxed under LR 300CA.
All language in the Nebraska Constitution authorizing income and property taxes would be repealed. State sales taxes are authorized in current law but aren’t mentioned in the constitution.
If income and property taxes go away, Erdman said, all the state and local departments or agencies that enforce, set and collect them wouldn’t be needed, either.
“One has to analyze: How much savings is there in streamlining government in this regard?” he said.
Passage of his amendment, Erdman added, also would end the debate over local and state tax incentives by eliminating them along with the taxes on which they’re based.
“We’d have businesses moving here, we’d have people moving here (and) we’d have people staying here,” he said. “It’s the greatest incentive program we can ever think of.”
Erdman said his envisioned consumption tax would fund not only state government but also local governments — which also would remain able to collect local sales, excise and lodging taxes as they can now.
As introduced, however, LR 300CA would strike constitutional language authorizing a “local option sales tax or any other general tax levied by the city or village” in addition to outlawing property taxes.
Erdman said Thursday night that his proposal isn’t supposed to eliminate authority for local taxes that fit under the consumption tax umbrella. He plans to double-check the measure’s language, he said.
If voters enacted both his petition proposal and consumption-tax amendment, he said, the 35% income tax credit on paid property taxes would act as a transitional tax break for Nebraskans in the old system’s last year.
Erdman last year introduced his petition-drive proposal as LR 3CA, which remains in committee.
He also is the author of LB 483, which would value farm and ranch land by its income capacity instead of its real estate value. First-round debate on LB 483 began last year but also stalled.