As a legislative committee gears up to study possible changes in the state’s tax system, Nebraskans are expressing a wide range of views.
That range was on display outside a supermarket in Crete, Neb. on a warm afternoon recently. On the one hand Kim Johnsen complained, “I think Nebraska is taxed for everything anymore. It’s just getting to be out of hand. They call Nebraska the 'tax me state' in my book.”
But a few minutes later, Cody Vance declared in his view, the tax system is “very reasonable.”
“I personally don’t have a problem with that current structure,” Vance said.
There are three major sources of tax revenue in the state:
-Nebraskans paid about $3.2 billion in property taxes last year – the most for any tax in the state. But the they didn’t go to state government -- most property taxes went to schools; the rest went for everything from city police forces to county roads.
-Income taxes were the second biggest source – about $2.2 billion, almost $2 billion of that personal, the rest corporate income tax. Income taxes were the largest single source of funding for state government, paying for things like Medicaid, higher education, and state aid to schools.
-Sales taxes were the third biggest source – about $1.5 billion, and went to pay for state programs as well.
Some Nebraskans say they’re okay with the taxes they pay, as long as it’s clear what they’re paying for. Others, like John Halton of Ashland, object to specific taxes. “Property taxes are the worst in Nebraska. We got one of the highest property tax states there is. It needs to be cut down,” Halton said.
Some people don’t mind property taxes, but object to income taxes.
Tracy Cook of Lincoln wants Nebraska to become more like other states in flattening or eliminating income taxes. “We lived in Nevada, which has zero state income tax. And I just saw the prosperity in that state because people came to that state because of the tax structure. We had people from the Silicon Valley retire there. That was the beginning of my feeling of no tax or a flat tax in this state,” Cook said.
Defenders of the income tax often argue it’s fair because it taxes people at a higher rate if they have a higher income and more ability to pay. Elyse Johnson of Omaha reflects those concerns in her advice to senators. ”Remember everybody in the state. And remember that we want to make sure that whatever taxes are put forward are fair to everybody, and that the taxes that are being proposed do not represent an unshared payment on behalf of the poor,” Johnson said.
To Don Herz of Lincoln, sales taxes are a prime target for change. “The sales tax base here in Nebraska has a lot of loopholes and areas that are exempt. I think by broadening the sales tax base, revenues could be substantially greater and could lead to a lower tax rate,” Herz said.
If Nebraska imposed sales tax on items it currently exempts, it would have collected about $5 billion more last year. In January, Gov. Dave Heineman proposed ending about half those exemptions – enough to eliminate personal and corporate income taxes. Groups that benefit from current exemptions protested. Manufacturers, for example, said taxing the parts they buy would make their products more expensive than competitors in other states.
The Legislature's Revenue Committee killed the governor’s bill. What resulted was the current legislative study by a newly-created Tax Modernization Committee. It’s led by Sen. Galen Hadley of Kearney, who said his goal is to make taxes equitable, not necessarily lower overall. Hadley said, for example, if policy makers think property taxes are too high, they might lower them by imposing sales taxes on services. “There are a lot of services exempted in Nebraska,” Hadley said. “I think we’ll probably look at whether this is inappropriate in a modern economy to exempt services.”
In the last decade, the Department of Revenue has estimated the state could collect between $600 million and $800 million by taxing services provided by everyone from real estate brokers and auto mechanics to doctors, lawyers and accountants.
Proposals to tax those services are likely to generate lots of debate, as will other potential changes in the tax code. The Tax Modernization Committee is expected to hold public hearings across the state beginning in September.
Editor's Note: Friday evening, June 14, Fred Knapp will host an NET News special, “Nebraska Taxes: Moving Forward.” This half-hour panel discussion will feature state senators and advocates with different perspectives on taxes in Nebraska. The program airs at 6:30 p.m. Central on NET Radio, and on television at 8:30 p.m. Central on NET1 and HD. It will also be available on our website, netnebraska.org/news.