Nebraska’s proposed one-cent sales tax increase still faces resistance

By: - February 7, 2024 6:35 pm

State Sen. Lou Ann Linehan of Elkhorn, chair of the Revenue Committee, addresses an income tax package on the floor of the Legislature on Wednesday, March 29, 2023, in Lincoln, Neb. (Zach Wendling/Nebraska Examiner)

LINCOLN — The effort by Nebraska Gov. Jim Pillen and State Sen. Lou Ann Linehan of Omaha to add one cent to the state sales tax and shift more of the tax burden to sales taxes from property taxes faced another round of stiff resistance Wednesday.

Linehan’s Legislative Bill 1315 received the backing of the Nebraska Association of County Officials and agricultural organizations, including the Nebraska Farm Bureau. Both argued the value of balancing the state’s “three-legged stool.” 

Nebraska lawmakers for years have argued that the stool’s three legs of taxation — income, sales and property — are out of balance. The state cut income taxes in 2023 and pledged $1 billion in school spending aimed at lowering property taxes.

Gov. Jim Pillen testifies to the Revenue Committee. (Paul Hammel/Nebraska Examiner)
Gov. Jim Pillen recently urged members of the Legislature’s Revenue Committee to “tune out the noise” and have the courage to pass his proposed new taxes to reduce property taxes. (Paul Hammel/Nebraska Examiner)

Linehan said state and local governments collect $4 billion to $5 billion in yearly property taxes, $3 billion in income taxes and $2 billion in sales taxes. With current exceptions, a one-cent sales tax hike would raise about $530 million. She said that’s $30 a month for many families, less than 1% of their annual income.

Bruce Rieker, who lobbies the state for the Farm Bureau, said his group was told to accept less property tax relief last year than it sought to help the income tax cuts pass. He said Pillen’s push on property taxes “is part of the deal.”

“We stand steadfast that it takes an additional billion dollars,” Rieker said.

Jon Cannon of NACO said his organization, which represents the counties, which are responsible for about one-sixth of the state’s property tax burden, is willing to be part of the solution. He said NACO supports the sales tax increase as part of a package.

He said his group recently polled Nebraskans and found 65% support for shifting more of the property tax burden to sales taxes.

“We are 100% invested in the process, very invested in making sure the property tax issue in our state is something that we can solve in a sustainable way,” Cannon said.

Opponents push back

Opponents, including the Holland Children’s Movement, cited their own poll showing a majority of those surveyed were opposed to raising sales taxes to offset property taxes.

Once again, opponents from across the political spectrum lined up to push back against the proposal. Testifiers from state and local chambers of commerce joined progressive nonprofits in describing the sales tax hike as economically damaging.

Rebecca Firestone, executive director of OpenSky Policy Institute, a nonprofit, nonpartisan think-tank in Nebraska. (Courtesy of OpenSky)

Suzan DeCamp of AARP Nebraska said seniors on fixed incomes and low-income Nebraskans would be disproportionately harmed.

Doug Kagan of Nebraska Taxpayers for Freedom and John Gage of Americans for Prosperity-Nebraska said their organizations want real tax relief, rather than  raising taxes of one kind to make another feel less painful.

Gage emphasized the need for hard spending lids, especially on K-12 school districts, which make up the largest portion of property tax spending.

“We do not like the Legislature’s attempt to hike the sales tax and call it tax reform,” Gage said. 

Linehan agreed that no relief will matter on property taxes without a lid on local and school spending.

State Sen. Kathleen Kauth of Omaha speaks on the floor of the Legislature. (Zach Wendling/Nebraska Examiner)

Jim Smith of the Platte Institute reiterated that group’s belief that broadening the sales tax base instead of raising the tax rate would be a better way to offset property taxes. He also urged the Legislature not to broaden the sales tax it to tax business inputs.

Rebecca Firestone of OpenSky Policy Institute said 80% of Nebraska households earning less than $146,000 would feel a greater impact from the proposed sales tax increase than the top 20% of the state’s income earners.

“A tax shift would make Nebraska’s tax system more regressive,” she said.

State Sen. Kathleen Kauth of Omaha asked Gage what spending should be cut at the local level, complaining that people say they want to cut spending but fight back as soon as something specific is proposed.

Gage did not offer specific cuts. He said the state is unlikely to dictate how local governments spend local tax dollars. But, he said, the state can cap how much money local governments can raise and force them to make choices.

“That’s where it gets really, really tough,” Kauth said. “Nobody is willing to say what they want to cut.”

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Aaron Sanderford
Aaron Sanderford

Political reporter Aaron Sanderford has tackled various news roles in his 20-plus year career. He has reported on politics, crime, courts, government and business for the Omaha World-Herald and Lincoln Journal-Star. He also worked as an assignment editor and editorial writer. He was an investigative reporter at KMTV.

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