Last week, I attended the fifth meeting of the Governor’s property tax working group. At each meeting, the group makes more progress in reaching a consensus on a plan to bring to the legislative floor in the next session. I continue to be impressed with the determination that the Governor demonstrates to control expenses and reduce taxes. Everyone around the table knows this is a huge priority, and we must develop a solution that reduces property taxes while keeping our tax system as fair as possible. 

I am still convinced that the best way to improve our tax equity is to have property tax, income tax, and sales taxes each generate equal amounts of tax revenue. As I have mentioned in the past, property taxes (prior to applying the income tax credit) generate approximately $5 billion annually. All these dollars are collected and retained by local political subdivisions. Income taxes generate approximately $4 billion at the present time. All these proceeds go to the state. Sales taxes generate approximately $2.3 billion annually for the state coffers due to the state’s 5.5% sales tax rate. Local political subdivisions can add a “local option” sales tax of up to 1.5% that they can then retain locally to help offset property tax collections. 

You can see from these numbers that property taxes account for more than one-third of the tax collections from these revenue sources. If the state were to increase the state portion of the sales tax by increasing the rate, eliminating exemptions, or a combination of the two, the state would then be able to direct more dollars to property tax rebates to lower further the net cost of local property taxes collected. It seems to me that we would need approximately $1 billion to achieve this result. In the end, property taxes could be reduced by as much as 25% from their current levels, and local political subdivisions would still retain their local tax collections. 

Some promoted two petition initiatives that would change the Nebraska Constitution to eliminate all forms of taxation except a consumption tax or excise taxes on all new goods and services. The petition language is both very broad and very restrictive. The petitions contain no language regarding how the new tax scheme would be implemented but clearly state that only groceries would be exempt. They leave broad implementation discretion to the Legislature, yet tie the Legislature’s hands when it comes to allowing for exemptions for ag equipment, and many other items that are currently exempt.

In the end, I believe that there are three questions everyone should ask themselves prior to signing these petitions. First, who would be paying more in taxes? The promoters cannot provide that information, yet logic holds that we cannot all save on our tax bill and still produce enough revenue to fund the state and local budget demands. Second, what assurances do those who live in rural Nebraska have that they will continue to receive the funding necessary to support our local political subdivisions? If all tax collections go through the State, then someone in Lincoln will be charged with redistributing the funds throughout Nebraska, essentially eliminating local control over taxing and spending.

And finally, can the petition language be realistically implemented? The two ballot initiatives are simply one-line initiatives and call for implementation by January 1, 2026. The details of how the tax would work would need to be developed by the Legislature, and implementation bills introduced in the past have never advanced beyond the first round of debate and often have not even gotten out of committee. Therefore, you can expect strenuous debate and substantial changes from those bills if the initiatives were to be adopted by the voters. Moreover, the Legislature would need to pass implementing language and the structure for such a tax in 2025, and that is likely to take many months. This would mean businesses will have a very limited time to update their systems to allow the collection of the new tax, so limited it may be physically impossible. 

It might also be important to note that only 16 of the 49 state Senators reside in the Third Congressional District. Although there are some rural Senators in the First Congressional District, urban-focused Lincoln and Omaha Senators could control the debate and the final votes. If the funding falls short over the years, what parts of the state would likely suffer? There is real merit to having local control over your property taxes that stay in your local taxing authority. 

In the end, no matter how we fund our local political subdivisions, if we cannot get a handle on controlling expenses, we will not be able to sustain the funding necessary to fund our budgets fully. Since property taxes are only assessed locally, it begins with our locally elected boards to hold the line on spending. We do it in business and must do the same thing in government. 

I look forward to continuing to hear from you regarding issues that are important to you. It is a privilege to serve as your State Senator, and I will continue to give my full effort to make a positive difference for the District and the State. You can reach me at mjacobson@leg.ne.gov or by calling my legislative office at 402-471-2729.