Hiking sales tax to lower property tax meets opposition

The idea of raising sales taxes in order to lower property taxes got a less-than-rousing reception in a hearing before the Legislature’s Revenue Committee Wednesday.

Sen. Lou Ann Linehan, chair of the Revenue Committee, introduced the bill to raise the state sales tax rate from 5.5 to 6.5 percent. Linehan said the idea is just part of Gov. Jim Pillen’s attempt to lower property taxes by 40 percent – an idea that also includes expanding the sales tax to cover more goods and services. And she denied that raising sales taxes would unduly burden lower-income Nebraskans.

“The claim will be made that a family whose income is under $50,000 pays five and a half percent of their income and sales taxes ignores the fact that family will not pay sales taxes on housing, which would at least be $12,000 a year, (and) for groceries, another $6,000 year. If they pay sales tax on everything else, then that family would pay 1% increase, which would equal $30 a month, or less than 1% of their annual income,” Linehan said.

Rebecca Firestone of the Open Sky Policy Institute said the sales tax hike would hurt lower income people.

“The recent modeling indicates that of any tax type, sales taxes currently consume the greatest share of lower-earning Nebraskans incomes -- five times more than that of top wage earners with a greater ability to pay. Sales tax is charged on many items which could be deemed necessities like cars, clothing and school supplies, and we can expect an increase in sales tax to touch everyone in Nebraska,” Firestone said.

Jon Cannon of the Nebraska Association of County Officials supported the bill, mostly for its goal of lowering local property taxes. Cannon quoted preliminary poll results he said show people want more state resources devoted to paying for local government.

“Forty-nine percent of the people prefer to have state sales tax to help fund local government, 21% prefer that to be funded solely by the property tax ,and 29% prefer a combination of the two,” Cannon said.

Garret Swanson of the Holland Children’s Movement offered competing poll results.

“When respondents were asked directly if they would support reducing property taxes by raising sales taxes from 5.5 to 6.5 percent, 43 percent of Nebraskans were in net favor, while 45 percent were net opposed, while 12 percent did not know,” Swanson said.

Bruce Rieker, supporting the bill for the Farm Bureau and eight other ag organizations, said it was needed to prevent property taxes from growing even more out of proportion to other taxes.

“The income tax revenue based upon fiscal notes is projected to grow at $100 million per year. Sales and use tax is projected to grow at $100 million per year. But between 2017 and 21, property taxes grew $193 million per year. And two years ago, they grew at $293 million and last year $286 million. That is unsustainable. And if you don't do something this year, we'll come back with a number that's $300 million bigger next year,” Rieker said.

John Gage of Americans for Prosperity opposed the bill, which he said would disproportionately benefit large landowners.

“The tax package is tax breaks for Ted Turner and Bill Gates, and tax hikes for the average Joe's in Lincoln, Omaha, Kearney, Grand Island, Scottsbluff, Columbus, and Norfolk,” Gage said.

That brought a comment from Revenue Committee member Sen. Fred Meyer.

“It has always seemed odd that we have picked one form of wealth to tax, and that's real estate. And you opened the door with Bill Gates and Ted Turner owning real estate. I could go back to friends in Omaha who have considerable wealth far beyond those fellas. And they pay no tax basically, because the assets that they have are not land or real estate,” Meyer said.

Meyer said he was referring to stocks, bonds, savings and IRAs, and asked Gage “Has your group ever talked about studying other forms of wealth that could be brought into a broadening tax base?”

“You’re asking if we would support a wealth tax in general?” Gage inquired?

“Well, have you ever even looked at it?” Meyer responded.

“No, I’ve not looked at introducing a wealth tax,” Gage said.

Actually, Nebraska used to tax intangible property, including stocks. But that tax was abolished in 1967.

More opposition to the sales tax hike came from Bryan Slone, representing the state and Lincoln Chambers of Commerce, the Nebraska Bankers Association and the National Federation of Independent Business.

“Our opposition relates solely to the tax shift and the effects of that shift, because for every person who has thousands or tens of thousands of dollars of reduction in property tax, in a tax shift somebody's picking up the tab on the other side,” Slone said.

Testifying in a neutral capacity, Bill Hawkins, an advocate of legalizing cannabis, said the state is missing out on a potent source of revenue.

“There is approximately a billion dollars right now being consumed in Nebraska with Nebraska citizens. It's time to tax it. Nebraska, it's time to start taxing these long-haired, tie-dyed, pot-smoking hippies and other cannabis consumers,” Hawkins said.

The Revenue Committee is now expected to consider a wide-range of proposals before recommending a package of changes to the full Legislature.