NEBRASKA — Tax reform has been a lingering question in the state of Nebraska going back several decades and there have been a myriad of proposed ways to do it. The Open Sky Policy Institute has questions about two proposals that are likely to enter the Nebraska Legislature.
Blueprint Nebraska is a statewide economic-development initiative, launched by Nebraska businesses and higher education leaders. In a tax reform proposal released in 2021, they called for cuts in the state individual income taxes and corporate income taxes, among other steps to help boost the state’s population and economy.
A 2019 report stated the need for housing, workforce quality and retaining the 18-34 year old population in Nebraska.
Blueprint projected 66,000 new jobs and 73,000 additional residents added over a decade by cutting income taxes, along with other measures. The cuts in income tax, both corporate and personal would amount to 4.99 percent.
People are also reading…
To offset the income tax cuts, they call for eliminating sales tax exemptions on several services. New taxes would be imposed on auto repairs, gasoline, plumbing, roofing services, legal and accounting bills, haircuts, sporting and concert event tickets, etc.
Groceries would remain tax-exempt, but 20 percent of exemption on doctor’s bills would be removed and the 40 percent of the tax exemption on medical equipment would be eliminated.
The inheritance tax would also be eliminated in the Blueprint Nebraska plan.
Open Sky questions this proposal for several reasons.
One is that there is an assumption there will be an increase in revenue from both state and local sources to be utilized for property tax relief. The issue being cutting taxes doesn’t automatically mean there will be an increase in revenue.
One example of this was Kansas Senate Bill Substitute HB 2117 signed into law in 2012, which represented one of the largest income tax cuts in the state’s history.
The hope was for the cuts to be a “shot of adrenaline into the heart of the Kansas economy,” according to former Governor of Kansas, Sam Brownback.
The reality was different; by 2017 Kansas’ revenues had fallen by hundreds of millions of dollars, causing spending on roads, bridges and education to be slashed. With the economic growth remaining below average, the Kansas Legislature rolled back the cuts.
An economic study published in 2018 found that the Kansas experiment did not stimulate economic growth, and if anything it harmed Kansas' economic performance.
Open Sky feels the Blueprint proposal is overstating the impact of the income tax cuts would have for Nebraska.
Another question is the elimination of the inheritance tax. Open Sky stated inheritance taxes are a major way counties help pay for their services, along with property taxes. Any elimination of this would hurt local counties. Many of these inheritance taxes are also paid by people who are out of state.
Removing exemptions on medical equipment and medication simultaneously would be a double hit on people with major medical issues, according to Open Sky. It would make a necessity for these people even more costly than what it already is.
Another proposal Open Sky finds issue with is the Eliminate Property, Income Corporate tax proposal (EPIC.)
The plan would be to eliminate virtually all state and local taxes in Nebraska and, instead, apply a consumption tax on all services and new goods. It would also remove all current exemptions.
Under the plan, local governments would have to submit a budget proposal to the state through approval through the Legislature’s budget process. School boards would go through the State Department of Education. This would be significant loss of local control over budgets.
Open Sky noted the complexity of setting up this type of system would be daunting.
The plan would set the consumption tax rate at 10.64 percent, but Open Sky feels the actual rate would have to be close to 15 percent make up for shortfalls.
The plan has also been criticized as regressive, taking a larger percentage from low-income earners than high-income earners, as it would be middle and lower class residents paying more in consumption than higher class residents.
Everything from gasoline to groceries to medical treatments would be more expensive. Open Sky stated this kind of change would alter the behaviors of people in their everyday spending.
Open Sky also noted this type of system does not exist anywhere else in the United States.
Another item Open Sky feels would not be in the best interests of Nebraska is LR14, the call for Nebraska to join with other states to call for an Article V Constitutional Convention.
Article V of the U.S. Constitution defines two ways to amend our supreme law of the land. This lesser-known, never-before-used method (and the subject of this bill) allows state Legislatures to apply to Congress to call a convention to propose amendments.
The idea behind calling for a convention would be to place restrictions on federal spending and balancing the federal budget. This seems like a nice idea on paper, but the reality is there are very few concrete rules in place for how a convention is supposed to take place.
A Constitutional Convention cannot be limited for several reasons,
- The U.S. Constitution does not lay out any guidelines or rules for a convention.
- There is no clear judicial, legislative, or executive body that would have authority over the convention.
- Given the lack of rules and authority, the convention would likely open to outside and special interests.
- The convention could create its own ratification process, rewriting the U.S. Constitution’s process of ratification by three-fourths of the states.
With so little in the way of guidelines or rules on a convention, Open Sky feels like action along these lines could be damaging to both the state and the country for a variety of reasons.
