Tax plan vs. tax plan—who wins?
This is a tale of two tax plans, one from the Governor and another from a rural senator. Both are driven by the fact that the rural ag economy is struggling and the Tax Foundation ranks Nebraska’s property taxes as 11th highest in the nation.
The Governor said the state has already provided more than $840 million in property tax relief over four years. He thinks a combination of property tax and income tax relief will be essential for growing the economy.
Senator Steve Erdman of Bayard favors his bill (LB 829) to lower property tax distributed through a state income tax credit or refund equal to 50 percent of local school property taxes. The plan will deliver $1.1 billion in relief beginning in 2019. He said it’s up to the Legislature to determine how to fund it.
The Governor said his plan (LB 947), carried by Revenue Chairman Jim Smith, will reform the tax code to focus existing property tax relief on Nebraskans through a credit that will refund 10 percent of the property taxes paid by Nebraskans on residential or agricultural land.
The proposal also contains triggers that will increase the tax credit whenever state tax receipts exceed budgeted receipts by one percent, until it reaches 30 percent of the property taxes paid by Nebraskans. The Governor said the proposal would provide over $4 billion in property tax relief over four years for farmers, ranchers and homeowners.
Income tax rates would also be reduced, he said, adding that right now 90 percent of individual income taxes paid by Nebraskans are at that top individual rate and 90 percent of Nebraska businesses pay at the top individual rate. The proposal would also add an additional $10 million over two years for workforce development.
Meanwhile, a group known as Reform for Nebraska’s Future is ready with a petition that would place the property tax issue on the November ballot if the Legislature does not act.
Executive Director Trent Fellers of Lincoln said he has completed preparations with the secretary of state for circulation of initiative petitions and could begin gathering signatures within the next few weeks. He said eliminating numerous sales tax exemptions could fund the plan.
Letting the voters decide isn’t always the best option.
It was 52 years ago that voters wiped out a newly-enacted state income tax law and simultaneously eliminated the state property tax, which was the essential funding source for state government. That was two months before the Legislature convened and Governor Norbert Tiemann took office.
The next year, lawmakers enacted a state sales and income tax system in a defining moment that would ultimately end Tiemann’s political career at one term and further drive a wedge between urban and rural interests. Urban interests bristled at the income tax. Rural interests, with vast amounts of taxable land, felt the property tax was unfair.
Property taxes are the chief funding source for local government, including school districts. Changes could shrink available revenue and adversely impact government’s role and ability.
A major concern with the Governor’s plan is the tax cut triggers. Oklahoma State Representative Leslie Osborn recently told reporters that her state had to reverse course because of problems with education funding and a staggering impact on state programs with a 45 percent cut to state agencies’ budgets. She urged resistance to triggers.
Osborn said tax decisions should be based on a broad and careful assessment of current factors and conditions, not by determinations already built into law.
It’s not likely that broad and careful assessment is going to come in an election year and a short session in Nebraska. Definitely not with other issues—some very serious—demanding lawmakers’ attention. Even Smith admitted there is a slim chance that something will pass.
Don’t expect a special session—the only sensible way to deal with the massive and complex tax issue—because it’s an election year with the even-numbered legislative district senators and the Governor seeking office.
When all is said and done, there will be more said than done. Lawmakers will walk away with a resolve to let the voters decide.
Let’s hope the electorate learned a lesson from 1967.