This past weekend, Julie and I were happy to take part in the annual Hershey Fall Fest parade. As an added bonus, we were joined by Miss Nebraska 2023 Morgan Baird. Prior to becoming Miss Nebraska, Morgan served as a page in the Nebraska Legislature. She is a class act.

I also spent time in Lincoln last week to catch up on some legislative duties and attend the first meeting of Governor Pillen’s Property Value Working Group. This first meeting was the first of four set to occur before the end of 2023. Hopefully, we will be able to offer a bill in the 2024 legislative session.

As the frustrations with property taxes reach the boiling point, some seek alternative ways to fund local governmental bodies. Although I share those concerns, I caution that the grass is not always greener on the other side of the fence.

One proposed solution is the Eliminate Property, Income, and Corporate (“EPIC”) tax plan. At its simplest, the EPIC tax would eliminate property, income, and sales taxes (but not excise taxes) and replace them with a “consumption tax,” taxing only new goods and services. In theory, this would allow consumers to control their tax bill by moderating their spending habits. Currently, a petition drive is underway to put the EPIC tax on the ballot in 2024.

I can see the appeal of the EPIC tax. We all want to send less money to the government, and it seems fair: that those with more money will spend more money and, therefore, pay more in taxes. Unfortunately, implementation is not so simple.

Here are a few things to consider before supporting the EPIC tax:

First, the ballot initiative wants to change the Nebraska Constitution to prohibit property, income, and sales tax and only authorize excise taxes and a consumption tax. Making the EPIC tax a constitutional mandate is hard to undo and risky, particularly given that no other state has tried this type of tax scheme.

Second, the ballot initiative simply directs the Legislature to implement the EPIC tax. Although hard to avoid with the way the “single subject” rule regulates how ballot initiatives can be drafted, there is no guarantee the Legislature will implement the EPIC tax as its proponents envision. Tax policy is very complex, and there will be a lot of interest involved in implementation.

Third, property taxes are currently assessed locally, by locally elected officials. As a result, you have the power to elect others to represent you if you truly believe that they are not representing your best interests. Proponents of the EPIC tax would instead send all the taxes collected to the State, where boards made up of unelected officials would decide how the money is distributed. Do we really believe that a board in Lincoln will not force school consolidation, given the disparity in cost per pupil in rural schools versus larger urban schools? What about consolidating county seats? How about road maintenance? It seems to me that local control would be a thing of the past.

Fourth, the consumption tax will not be at the current sales tax rate. Today, the State portion of sales tax is 5.5%. In the 2021-22 Fiscal Year, Nebraska collected $2.1 billion in sales taxes. It also collected $3.2 billion in individual income taxes, $715 million in corporate income taxes, and about $250 million from other sources for a total of approximately $6.26 billion. Additionally, local taxing authorities collected just over $5 billion in property taxes. This takes us to $11.26 billion in statewide tax collections, not including local option sales taxes that typically take the existing retail sales tax to 6.5-7.5%.

So, the question then becomes, how high does the new “consumption” tax rate need to be? Proponents suggest 7.5%, but the Nebraska Chamber of Commerce estimates that the actual rate would need to be 15-20%. Will Nebraskans truly be saving? Can we ensure sufficient revenues, particularly when shoppers in many communities can easily cross into border states? What happens to the cost of owning and operating a business in Nebraska?

Fifth, because the consumption tax applies to all new goods and services, it can really add up for big purchases. For example, let’s pretend a couple decides to purchase a new home for $300,000, and the consumption tax is 10%. If they choose to put down only 10% of the purchase price, here is the total amount that they would need to bring to closing: $30,000 for the down payment, $30,000 to pay the consumption tax, $27,000 to pay the consumption tax on their $270,000 mortgage, plus payment for closing costs of title insurance, transfer fees, and the associated consumption taxes on these items. In the end, they would need nearly $100,000 at closing to buy a $300,000 home but would come away with only $30,000 in equity. Is this truly a good replacement for property taxes, especially for young families?

I believe we need to explore every solution to our high property tax problem. Unfortunately, I’m not convinced the EPIC tax is ready for prime time. The more responsible path is to continue the Legislature’s work to reduce property taxes and better balance the tax burden while continuing to seek a long-term solution.

Please continue to contact me on this and other issues at mjacobson@leg.ne.gov, or feel free to call my office 402-471-2729. My door is always open!