LINCOLN — Farmers, ranchers, small-business owners, retirees and a recent Creighton University graduate delivered a common message of frustration about Nebraska taxes Wednesday.
Testifying before the Revenue Committee, they told of the impact that state and local taxes have had on their incomes, their lives and their families. And, together, they called for a radical change in how state and local governments are funded.
“Big steps are needed,” said Duane Lienemann, a retired teacher from Blue Hill. “We cannot keep going down the road of the status quo.”
He and more than 20 others spoke in support of Legislative Resolution 300CA, a proposed constitutional amendment that would require that a consumption tax be imposed on all new goods and all services purchased in the state.
The proposal, introduced by State Sen. Steve Erdman, would eliminate all other taxes in the state, including income, property, sales and inheritance taxes. An amendment to the measure would allow excise taxes on fuel to continue.
Erdman cast LR 300CA as a solution to Nebraska’s tax problems, particularly the unrest over property taxes that is fueling an initiative petition drive. The petition would require income tax credits to offset 35% of property taxes paid by homeowners, farmers and businesses at a cost of about $1.5 billion.
“You’re going to face a 35% solution or you’re going to face this one,” he warned, predicting that lawmakers would not make significant headway on providing property tax relief this session.
Opponents of LR 300CA argued that the measure would force huge hikes in taxes on purchases that would fall mostly on middle-class Nebraskans. They also questioned how the proposal would work.
John Hansen, president of the Nebraska Farmers Union, said his organization has looked at similar proposals through the years. He said lawmakers should not act on the proposed constitutional amendment without knowing more about how the new tax would be applied and what rate would be required to replace current state and local government revenues.
A study commissioned by Nebraskans Supporting the Fair Tax concluded that the consumption tax rate of 11.08% would bring in about $9.9 billion a year, which they estimated would be enough to replace individual and corporate income taxes, state and local sales taxes, property taxes and the gas tax.
But Tiffany Friesen Milone, policy director at the OpenSky Policy Institute in Lincoln, said studies in other states raise concerns about how high the rate would need to be. Michigan, for example, considered a consumption tax proposal that would have raised the sales tax to 9.75%, up from 6%, and broadened the tax base. But the plan would have fallen $2.5 billion short of being budget neutral.
She also said the proposal would mean applying taxes to groceries and health care. It also appears to apply to rent, mortgages, car loans, credit card interest and legal fees.
Erdman said all state residents would get regular “prebate” checks aimed at keeping the new tax from being a burden on low-income people and to cover the taxes paid on necessities. The check amounts would be based on the amount of spending by people at the federal poverty level.
Hansen pointed out that all tax revenue would go to the state under the proposal. That means cities, counties, schools and other local governments would have to ask the state “on bended knee” for money to operate.
Erdman’s amendment to LR 300CA would allow local governments to levy their own consumption taxes, but only if voters approve.
Testimony supporting the proposal focused more on potential savings from the taxes it would eliminate than the tax it would create. But others said a consumption tax would attract people to Nebraska and keep others from leaving.
John Knapp, a farmer from Springfield, said a consumption tax would give people more freedom to decide their own taxes because it is based on what they purchase. Darcy Carpenter, a small-business owner from Nebraska City, said Nebraska could be a national leader in making the change.
The consumption tax plan mirrors one that has been pushed at the national level since the mid-1990s by the Dallas-based Americans for Fair Taxation. Backers now are turning their sights to the states. Proposals have been introduced in recent years in Alabama, Georgia and Minnesota.