Property, income, sales tax changes under consideration

Members of the Tax Modernization Committee listen to suggestions at a recent public hearing. (Photo by Fred Knapp, NET News)
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October 29, 2013 - 6:30am

Nebraskans had their say on state taxes in public hearings this summer and fall. Now, the Legislature’s Tax Modernization Committee is deciding which changes to endorse. There are plenty of ideas, each one with benefits, or costs, for different people.

Let’s say you’re single, and make more than $27,000 a year.  Or a retired couple, with more than $32,000 of income, including Social Security. Or a farmer, with land valued in the millions and high property taxes. If so, you might like some of the ideas being proposed or considered by the committee.

 On the other hand, if you have a car that needs repairs, or if you take clothes to the dry cleaners, you might not like some of those ideas.

Before a recent public hearing, Sen. Galen Hadley, chairman of the Tax Modernization Committee, asked if there were other senators in the audience. Then, he suggested their job may not be all that enviable. “Anybody that wants to be a senator?” he asked, to raucous laughter. “Twelve thousand dollars and all you can eat and drink.”

Then senators drank from a fire hose of public complaints, like one from Alvin Guenther, a retired educator from Dunbar, who described what’s happened on land he and his sister own. “In five years my property tax liability rose from $1,459.12 to 3,412.14, representing a 234 percent increase in property tax,” he said.

Add a zero or two to those tax bills, and you could be describing what some in agriculture have faced as land values boomed in recent years. Sen. Tom Hansen of North Platte said the committee could increase an existing local property tax credit, funded by state sales and income tax collections. “That certainly has some possibilities. It will help some. It doesn’t help a lot on a percentage, but it is equal and it is equitable to give back to every tax owner in the state,” he said.

Last year, that credit offset about 3.5 percent of local property taxes – saving the owner of a $100,000 house about $70, at a cost of $115 million in state tax dollars.

The Nebraska Farm Bureau has offered a more sweeping proposal costing more than $400 million a year. It said spending should be cut and the sales tax should be expanded, but doesn’t say how.

The Open Sky Policy Institute, a think tank, recommends taxing motor vehicle repairs, dry cleaning and other services to the tune of $150 million a year to help lower property taxes.

But AARP Nebraska, a lobbying organization for those over 50, said it is against swapping one regressive tax for another.  

Hadley said committee members may agree on a proposal affecting income taxes on Social Security. Currently, Nebraska doesn’t tax Social Security on incomes below certain levels – for example,  below $32,000 for a couple. If those exemption amounts are raised, people who get Social Security could get more income from other sources without being taxed.

Gov. Dave Heineman said more income tax changes are needed. “Reforming Social Security on the income side isn’t enough,” he said. “We need to talk about lowering income tax rates in this state, particularly the top income tax rate, so we can recruit higher-paying jobs to this state.”

The state Chamber of Commerce has proposed lowering that top tax rate from almost 7 percent to 5.5 percent. The Platte Institute also recommends lower income taxes.

Hadley said it could be difficult, politically, to reduce rates only for upper income brackets. But Barry Kennedy of the state Chamber of Commerce notes that top rate applies to income above $27,000 for an individual, hardly an upper income figure.

Accountant John Cederberg suggests cutting income taxes would spur economic growth and attract more people. “The fundamental property tax issue in this state is that we have lots of property, and we have fewer people.  We’re not going to have less property. But if we have more people, that will give us permanent property tax relief,” Cederberg said.

But Richard Sims, an economist with the National Education Association argued income taxes grow faster than the economy and are needed to offset the fact sales and other taxes grow more slowly. “If you did something such as cutting the individual income tax, or going all the way to doing away with it, the other taxes that you have would all have to be increased – not just one time, but year after year after year just to maintain anything like a constant level of public services,” Sims said, adding the alternative was to cut services drastically year after year.

Hadley said the committee may recommend indexing income tax brackets to inflation. That and many other ideas are likely to be discussed in a committee work session Friday.

Whatever recommendations members come up with may be discussed at another public hearing in December, before they’re presented to lawmakers in January.                 

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