Senators begin debate on sales tax hike to lower property taxes

The Nebraska Legislature began debate Wednesday on a proposal for significant tax changes, with senators expressing wide ranging opinions.

The bill in question, LB388, would raise sales taxes and apply them to a range of currently exempt goods and services. Another separate bill would direct the money raised to schools, with the idea that they would then reduce the property taxes they currently rely on.

Sen. Tom Brandt expressed strong support for the bill.

“It's time for Nebraska to pursue property tax relief. The governor wants this. The Legislature wants this. And most importantly the people of the state of Nebraska have been asking for this for many, many years,” Brandt said.

Sen. George Dungan supported the goal, but opposed the bill. “Everybody here, I think, is trying to work towards the same goal of achieving property tax relief that is actual property tax relief. The difference that we have, I think, is our opinions of how to get there,” Dungan said.

Many opponents zeroed in on the proposed increase in the state sales tax rate, which could increase from the current 5.5 percent to 6.5 percent. Among them was Sen. John Cavanaugh.

“I'm opposed to increasing sales tax on the people of the state of

Nebraska,” Cavanaugh said.

But Sen. Kathleen Kauth said that’s not a deal-breaker for the people she talks to.

“Every person who I've engaged with -- every person who has actually taken the time to talk with me about this -- just has said if we can guarantee that that property tax is going to be lowered, they will be happy to pay that sales tax,” Kauth said.

And Brandt said the sales tax might not have to go up by a full percentage point.

“Possible sales tax increases are based on the June forecast. We don't know today is it going to be zero, one quarter, one half, three quarters or one percent,” he said.

The bill says the rate will go up one percentage point, unless state revenues at the end of June are at least 3.5 percent above projections. But Dungan said relying on that is a risky proposition.

“What we're doing in this bill essentially is, we are betting that the forecasting board was wrong, and that we are going to do better than the forecasting board in our actual general fund revenues. And if we do really well, the sales tax won't increase at all. And if we do kind of well, it goes up a little bit, and then ultimately, if it falls under a certain trigger mechanism, then the sales tax will go up to 6.5%,” he said.

Sen. Danielle Conrad, also opposing the bill, questioned whether the trigger mechanism was an unconstitutional delegation of legislative authority to the forecasting board.

Sen. Myron Dorn, supporting the bill, pointed to rising property valuations that mean property taxes go up, even if levies remain the same. Dorn said action is needed.

“If we sit here and do nothing, we are voting for a tax increase, and that is a property tax increase,” Dorn said.

But Sen. Steve Erdman, opposing the bill, portrayed it as another attempt at the same strategy that he said has failed for decades.

“It is a decrease in the increase. That's what we've done here since 1967. So when you hear the phrase ‘property tax relief,’ let it be known that means a decrease in the increase. It's not you pay less than what you did last year. It's a decrease in the increase,” Erdman said.

After four hours of debate, Sen. Lou Ann Linehan, head of the Revenue Committee, said she had asked Speaker of the Legislature John Arch to delay further consideration of the bill until next week, and invited senators to contact her with ideas for possible changes over the weekend.