Backers of Nebraska consumption tax amend proposal, launch petition drive for 2024 ballot

LINCOLN — Backers of a dramatic change in state taxation announced changes to their proposal on Thursday as they launched a petition drive to place a “consumption” tax plan before Nebraska voters in 2024.

Speakers at a press conference said that a tax on consumption would fix the state’s “broken” tax system, reduce cost by eliminating property tax-related offices, and make Nebraska a more attractive place to live.

‘Broken’ since 1967

“Our state has operated under a broken tax system since 1967,” said State Sen. Steve Erdman of Bayard, a leading proponent, referring to when the state first approved state sales and income taxes.

The head of the Nebraska Chamber of Commerce, meanwhile, said that while the organization would look at the new changes in the proposal, a consumption tax has been clearly “unacceptable and dangerous” in the past.

“This falls into the category of if it sounds too good to be true, it probably is,” said Bryon Slone, the chamber’s president.

Worries state would be uncompetitive

He said that a tax rate of 12-20% on purchases would probably be necessary to duplicate current tax revenues, which would force consumers out of state and make Nebraska uncompetitive.

Erdman said recent tax relief steps taken by the State Legislature have only slowed the growth in property taxes and that a dramatic change is needed.

“We keep putting a Band-Aid on an amputation,” Erdman said.

The consumption tax idea, which has failed to advance in past years, would eliminate state income, sales and inheritance taxes, as well as the current state aid to K-12 education program, and replace it with a tax paid on all retail purchases.

Purchases of farm and business equipment would remain exempt, and excise taxes on gas would remain, Erdman said. But, he said, a complicated “pre-bate” for low-income families has been dropped from the plan and replaced with a tax exemption on groceries.

Some things yet to be worked out

The senator said that among the issues yet to be worked out are how to distribute consumption tax proceeds to local governments and schools and what to do about millions of dollars of state business tax incentives that have not yet been redeemed.

Slone said “the math” surrounding the revenue generated by a consumption tax hasn’t worked out in the past and would leave the state short of funds to operate schools and build roads. That, in turn, would force a higher tax rate than border states.

The Platte Institute, an Omaha-based think tank, has been pushing to expand the state’s sales tax base by eliminating exemptions on several items. The organization supports major changes in the state’s tax system and state aid formula.

But its chief executive officer, Jim Vokal, said a consumption tax “goes too far and has many unanswered questions and negative consequences.”

Tax rate of 7.5%

Backers of the consumption tax disputed that, saying that their idea has been fully vetted and that a tax rate of 7.5% or less would be necessary. Erdman said Nebraskans would prefer to pay a one-time, 7.5% consumption tax on a new car, rather than pay the current sales tax rate and, for years after, pay yearly motor vehicle taxes.

On Thursday, Erdman introduced Legislative Bill 79. The measure, billed as the “Nebraska EPIC Option Consumption Tax Act,” explains the “nuts and bolts” of the proposal, the senator said. He also introduced two proposed constitutional amendments to eliminate state sales and income taxes and replace them with a consumption tax.

Because it’s unlikely the Legislature will advance the proposals, the EPIC group (which stands for “eliminate property, income and corporate taxes”) launched a petition drive on Thursday to put the issue on the 2024 ballot.

COVID foiled petition drive

Paul Van Behren, retired veterinarian from Fremont, said COVID-19 led to the failure of an effort to get the consumption tax idea on the ballot in 2022.

Van Behren and Erdman were also involved in an unsuccessful initiative petition drive in 2018 for another tax reform idea.

Co-sponsoring this year’s proposal on the consumption tax are State Sen. Tom Brewer of Gordon, Robert Clements of Elmwood, Steve Halloran of Hastings, Mike McDonnell of Omaha and Dave Murman of Glenvil.