Many constituents have been asking about the upcoming session and how the legislature will balance the budget with an over $400 million projected budget deficit at the beginning of the session. There are as many answers to this question as there are state senators. The two that are mentioned the most are (1) delaying the final reduction in the state income tax rate, and (2) transferring the funds currently allocated to the Perkins County Canal project to the General Fund. Both are nonstarters for me.

The challenge ahead is to determine what combination of revenue generators and spending cuts can be agreed to by at least 33 of 49 Senators to balance the budget. So far, efforts to expand the sales tax base by increasing existing excise taxes and removing certain exemptions have fallen short of the necessary votes. If we are not willing to expand the sales tax base, Senators will have to make some tough decisions about spending, which includes not only agency operations, but also funds dedicated to income and property tax relief.

Like our property taxes, income taxes are too high compared to those in surrounding states. Two of our neighboring states have no income tax, and the others are below us today. Our goal is to be no higher than Iowa, which is right next to our largest city in Nebraska. We do not want people moving to Iowa and paying taxes in Iowa while working in Nebraska. We must be competitive if we want to attract people to the state and retain those already here. One of my greatest frustrations is seeing residents about to sell their business and retire, buy a home in Florida or Texas to establish residency there two years prior to the business sale to avoid paying tax on the sale to Nebraska, and using the savings to buy a new home elsewhere. When I hear people say “Tax the rich,” they seem not to realize that “rich” people know how to avoid taxes. This is just one way to do that. Why do we incentivize people to leave the state when they have lived here most of their lives?

The same can be said about property taxes. Our property taxes are forcing retirees out of their homes by rising at unsustainable rates. The state has taken steps over the years to reduce local political subdivisions’ reliance on property taxes to fund their operations. We have tried subsidizing schools directly, expecting the savings to be passed along to taxpayers, only to find that only part of the savings resulted in tax relief. We have provided taxpayer credits that appear disconnected from tax relief. We have also removed certain political subdivisions from assessing property taxes and replaced the revenue with state revenue from other tax sources.

But property taxes are still rising. The Governor appointed a group two years ago to help find recommendations for a solution, but we could not reach a consensus. The discussion leaned toward adding several new goods and services to the sales tax rolls to raise funds for property tax relief. In the end, we cannot compete with our tax rates if we are not willing to look at all tax sources and examine if they are fair and don’t overburden any one group of taxpayers. In the end, reducing taxes can only be achieved if expenditures are reduced or the tax that is lowered is offset by raising or broadening the base of other taxes. It is simple math.

There are ballot initiatives proposed to eliminate property and income taxes. This would leave sales taxes as the only source of revenue to replace the lost dollars. How much that would be is not clear. I prefer to have a clear understanding of how this move would impact individual taxpayers, in addition to understanding how these tax revenues would be distributed. That work has yet to be shown. I continue to be concerned that removing local tax authority and centralizing everything with the state would result in real funding challenges for rural Nebraska.

It is a privilege to represent you in the Nebraska Legislature, and I look forward to hearing from you regarding issues that are important to you. I can be reached at 402-471-2729 or by emailing me at mjacobson@leg.ne.gov.