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It has been said the only fair tax is a tax paid by somebody else. Issues of fairness in tax policy is as old as taxes themselves. I have yet to meet a constituent has does not feel overtaxed. Similarly, special interest groups frequently argue for tax exemptions for a wide array of reasons, as taxes are an impediment to business growth. Over the next three weeks, I will discuss the different types of taxes in Nebraska, the distribution of the tax burden among different groups of taxpayers, and some of the proposed changes to Nebraska’s tax policy.
Compared to all 50 states, Nebraska ranks high in all categories of tax collection. The Tax Foundation collects data on tax collection and revenue and reports rankings on a per capita basis, allowing taxpayers to evaluate the tax burden per person between states. The higher a state ranks, the more taxes paid. Combining state and local tax collections, Nebraska ranks #17 among all 50 states. Looking closer at different types of taxes, Nebraska is toward the top, ranking #13 in both income and property tax collection, #18 in corporate income tax collection, and #19 in state general sales tax collection. In some specific categories Nebraska is extremely high. For example, we rank #2 in state and local cell phone tax rates at a shocking 18.53%.
Local governments are funded primarily through property tax receipts. Many cities also have a local sales tax, and state and federal aid dollars support many local programs. Property tax collections for 2014-2015 totalled $3.8 billion to fund local governments. That is a 65% increase from the property taxes collected 10 years ago.
The state General Fund represents revenue collected from personal and corporate income taxes and state sales taxes. Additional revenue comes in the form of excise taxes levied on certain items such as fuel, cigarettes, and alcohol. Total receipts to the state General Fund for 2014-2015 were $4.3 billion, which is 41% greater than a decade ago.
In light of these facts, it is difficult to assert that an increase in taxes of any category is a rational policy solution. How the entire tax burden of all is distributed among taxpayers must be the focus of reform. Central to this discussion is the divided nature of Nebraska’s tax system, with property tax rates set and revenue spent by local governments, while income and sales tax rates are set and revenues spent by the Legislature.
Each revenue type also has its own inherent unpredictability. State budgets are established based on prospective revenue forecasts. Sales tax revenue is particularly volatile, responding to local economic conditions. If revenues do not match budget appropriations, as is currently the case, tough decisions must be made about spending commitments. In contrast, local budgets are built using retrospective property valuations of the prior year. Levies are set to match the budget needs, and the revenue is insensitive to fluctuation during the funding period. Budget stability is directly linked to the source of revenue.
Next week I will discuss the distribution of the tax burden among different groups of taxpayers. In the meantime, don’t hesitate to contact me at firstname.lastname@example.org . Please note my office location in the Capitol has changed to room 1308.