SCOTTSBLUFF — A new report from the Platte Institute indicates about 47% of Nebraskans would support an expansion of the sales tax base to include services if receipts were used to reduce property taxes.
In the second edition of last year’s “Get Real About Property Tax,” the Platte Institute’s latest report, the organization says it found that overall 62% of voters supported a firmer cap on increases in local government spending.
The Nebraska Legislature repealed the state property tax in 1967 via constitutional amendment. That returned property tax collection to the counties. Since then, the per capita increase has more than doubled when adjusted for inflation. Nebraska now has the seventh highest property tax rate in the nation.
“Property taxes were an issue even before Nebraska became a state,” Sarah Curry, Platte Institute Policy director, said. “Part of the paper addresses common questions and concerns, mainly how we’d pay for property tax reform without cutting core government services to areas such as education.”
The Platte Institute states in the paper that lasting cuts to property taxes without raising the state tax rate will require the elimination of current sales tax exemptions for consumer goods and services. Nebraska imposes sales tax on 81 types of services, while neighboring South Dakota collects sales taxes on 152 of those services.
The Tax Foundation advises that sales tax should be collected on the final sale of all consumer goods and services, exempting business inputs.
“We talk a lot about property tax relief in Nebraska, but what we need is actual reform,” Curry said.
One reform measure is a constitutional amendment ballot initiative introduced by Sen. Steve Erdman of Bayard that would provide a 35% credit on a taxpayer’s property taxes, applied to the state income tax return. That would add more than $1.3 billion in income tax credits to the annual state budget.
If that ballot initiative were to pass, the Platte Institute predicts it would take about 28% out of the state’s annual revenue.
Adam Weinberg, Platte Institute’s communications and outreach director, co-authored the report with Curry. He said they conducted a poll last January of residents in eight legislative districts represented by members of the Revenue Committee, which determines what tax policies will be considered by the full Legislature.
“It was an interesting mix of urban, suburban and rural districts,” Weinberg said. “Respondents represented a cross section of different attitudes in our state.”
Weinberg said that during polling, they didn’t ask questions that would generate an expected response such as “Are property taxes too high?” Instead, they asked questions that would require people to make difficult choices based on what they value and are willing to support as taxpayers.
Weinberg said that if people really desire property tax reform, they need to consider what kind of choices they could live with so the tax structure could be changed in a significant way.
“We saw broad agreement in the report there should be additional limitations that the state places on local property taxing authorities,” he said. “That was a key area of agreement from district to district.”
Weinberg added that property tax reform will need to be funded through changes in the state tax structure, not just a straight cut in property taxes.
According to supporters of Erdman’s proposed constitutional amendment, some state senators believe property taxes are the most stable and reliable source of revenue. It differs from sales and income taxes that fluctuate every year.
“Property tax has always been a stable source of revenue,” Curry said. “But as with any tax, once you reach a tipping point, the law of diminishing returns kicks in. Taxes reach such a high level that people start altering their behavior to avoid the tax. Nebraska has gotten to that point with property tax.”
The second most stable tax is sales tax because people still purchase basic needs, even when income taxes decline.
“We feel an appropriate replacement for the property tax in Nebraska is an expansion of the sales tax base,” Curry said. “We don’t support an increase in the state sales tax rate. That way we’re replacing one steady revenue source with another. Revenues from ending the exemptions should be used to reduce property and sales tax rates.”
The full report “Get Real About Property Taxes: Second Edition” is available at the organization’s website: platteinstitute.org/policy.
Weinberg said it’s the organization’s hope the report will be an effective tool for legislators to use in designing real property tax reform once the Legislature reconvenes next January.