LINCOLN — With political redistricting in the rearview mirror, a panel of Nebraska lawmakers turned their attention Friday to the equally thorny issue of tax reform.
State Sen. Lou Ann Linehan of Elkhorn, who chairs the Revenue Committee, began an interim study hearing by telling fellow committee members that Nebraska has the opportunity next legislative session to “bring about meaningful change” in the state tax system.
She described the current system as one that has been patched multiple times over the years to address various problems and concerns but has not undergone a major overhaul since Nebraska established its sales and income taxes in the 1960s.
“We have a tax policy that’s not transparent, it’s difficult to administer and comply with, and we’re still left with a high tax burden,” she said.
But in comments later, Linehan said that if state tax revenue continues coming in above projections, it may be more politically doable to simply cut some taxes. She said it would be difficult to raise taxes in that situation, even as part of revamping the tax system.
“If we have the money, we should cut taxes,” she said.
Toward that end, she suggested lowering the top income tax rate for both individual and corporate taxpayers, exempting the first $50,000 of income from taxes, completely eliminating income tax on Social Security benefits and setting new limits on local government spending.
Linehan’s position would rule out proposals for broadening the sales tax base, no matter how the new revenue would be used. Gov. Pete Ricketts has long opposed any plan that increases taxes in any way for any purpose.
But Blueprint Nebraska, an economic development initiative, has called for a major reduction in income taxes paid for by applying the sales tax to a wider array of goods and services.
Several speakers Friday called for a similar broadening of the sales tax base, while suggesting a variety of uses for the money collected on those newly taxed items. Ideas included lowering the sales tax rate, reducing or eliminating other taxes or better funding education.
The Revenue Committee invited a number of key groups to speak at the hearing, including representatives of business, agriculture, K-12 education and local government. All were asked to talk about which tax — property, sales or income — should be the focus of reform and what changes should be made to improve the state’s tax system.
Poll: Which part of Nebraska's tax system is most in need of reform?
For the most part, speakers from business groups said income taxes should be the top target, while agriculture groups said the target should be property taxes. Both expressed interest in sales taxes as a way to make reform possible, including a call to rebalance the “three-legged stool” of property, income and sales taxes.
“The issue of tax modernization is indeed decades old. The battle lines have been drawn for many years now,” said Bryan Slone, president of the Nebraska Chamber of Commerce and Industry. “But the urgency of tax modernization is probably more important today than it’s ever been.”
Representatives of K-12 schools and local governments called for a stable tax source and pushed back on suggestions that one way to reduce property taxes would be to limit the growth of local spending. They pointed to budget limits and property tax levy lids that are already in place.
Linehan said she expects the Revenue Committee to start work on a 2021 tax plan in a few weeks, after the state forecasting board meets to revise its projection for state revenue. The board will meet at the end of October to update its forecast for the rest of the two-year budget period, which ends June 30, 2023.