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Legislature's tax committee meets, but no solutions to lower property taxes

Legislature's tax committee meets, but no solutions to lower property taxes

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LINCOLN — Getting 14 lawmakers to agree on proposed changes in Nebraska tax policy is proving easier said than done.

Members of the Tax Modernization Committee set up by the Legislature labored for 2½ hours Friday without reaching agreement on any proposed changes to the state's tax system.

There was general agreement that property taxes are too high and that Nebraskans from border to border complain most about taxes on real estate.

But lawmakers decided they'll need a couple more meetings this month before deciding whether, and how, to tackle tax changes.

“It's a very complicated issue,” State Sen. Galen Hadley of Kearney, chairman of the tax committee, said of overhauling the tax system. “We will try our best to meet the expectations that the people have.”

The special committee held public hearings earlier this fall as part of a six-month effort to craft changes to make taxes fairer and more reflective of today's economy.

A report on suggested changes is scheduled to be completed by Dec. 15, and proposed legislation for the 2014 session is expected to follow.

Sen. John Harms of Scottsbluff, a committee member, said “something” needs to come out of the long study; otherwise, the public perception could be of government doing nothing.

Most of Friday's discussion centered on the politically sticky issue of how to finance any tax cuts. The committee's goal has been to craft tax changes that are revenue neutral — a tax swap — so that funding levels for existing services are maintained.

Hadley passed out one financing idea: expanding sales taxes to a variety of consumer services such as auto repairs, hair cuts, contractor labor and dating services, raising $175million. But senators said they wanted more information before backing such an idea.

Sens. Paul Schumacher of Columbus and Jeremy Nordquist of Omaha both raised concerns that taxing more services would increase the tax load on poor and middle-class Nebraskans.

But Hadley said if lawmakers can't find a way to finance tax changes, it would be difficult to offer property tax reductions.

Sen. Charlie Janssen of Fremont, a Republican candidate for governor, offered one idea for raising more revenue: expand gambling in the state.

Nebraska voters have rejected past attempts to allow casinos or video slot machines, but Janssen noted that the most recent vote on the issue was some time ago, in 2006.

Utilizing some of the state's cash reserve fund, now standing at a healthy $675 million, to finance tax changes brought a lukewarm response.

The cash reserve, along with $600 million in federal stimulus funds, helped Nebraska weather the recession better than almost all states.

But using such “one-time money” for ongoing tax cuts is bad policy, said Sen. Heath Mello of Omaha, who heads the Legislature's budget-writing Appropriations Committee.

Mello said the cash reserve should be used for such things as addressing overcrowding in state prisons, which now hold about 1,600 more inmates than their design capacity.

Two lawmakers proposed providing local property tax relief by shifting more costs to the state.

Sen. Kate Sullivan of Cedar Rapids, chairwoman of the Education Committee, said her committee supports increased state aid to schools to lower property taxes.

Sen. Ken Schilz of Ogallala said the state should look at financing such areas such as criminal justice or human services that are now financed by county property taxes.

Looming over all possible tax changes are political obstacles.

Hadley said any changes in sales taxes could face a filibuster that would require 33 votes of the 49 senators to overcome. Sen. Ernie Chambers of Omaha, widely known as the king of filibusters, is a staunch foe of raising sales taxes because of the greater impact they have on the poor.

Next year also is an election year. Sen. Burke Harr of Omaha said because he is up for re-election, he must be “very careful” about supporting anything, like new taxes on services, that could be perceived as a tax hike.

The Tax Modernization Committee grew out of the failure of Gov. Dave Heineman's proposals earlier this year to end all state income taxes. The ideas were quickly killed and he has backed off those plans.

But Heineman says the tax system in Nebraska hurts job and population growth because taxes are lower in neighboring states.

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