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Last week I introduced what may prove to be the most important piece of legislation of my tenure as a Nebraska State Senator. Last Thursday I introduced LR 300CA, a Constitutional Amendment for a single-rate consumption tax. LR 300CA will fundamentally change the way we collect taxes in Nebraska, so, today I would like to tell you how this resolution will benefit our state.
First, this Constitutional Amendment would eliminate all other State taxes. Say Good-bye to property taxes, State income taxes, and State sales taxes. The only tax the State would be able to collect would be the single-rate consumption tax. Consequently, taxpayers will finally know how much they pay in taxes, because all of the other hidden taxes would finally go away.
Second, the consumption tax would never tax low income residents. Currently, those living below the federal poverty line pay sales taxes, but under my plan the State would pay it for them. The consumption tax comes with a monthly pre-bate which would protect low income folks from paying the State consumption tax. Each month the State would issue a pre-bate to every man, woman and child living in Nebraska equivalent to the amount of consumption taxes paid up to the federal poverty line.
Here’s how it works. The federal poverty rate for a single adult in 2020 is $12,490. So, a single adult making $12,490 per year would receive a monthly pre-bate in the amount of $110 to cover his or her monthly consumption tax burden. Similarly, a couple, regardless of their annual income, would receive a monthly pre-bate in the amount of $214.50. Moreover, a family of four spending $64,000 per year would have a consumption tax rate of only 5.30 percent after the prebate. So, the State would only keep the amount of consumption taxes paid by consumers above the federal poverty line.
Third, the consumption tax would only tax new goods and services, such as drycleaners, dog groomers, and garbage collectors. However, the situation would be much different for purchasing material or tangible goods.
When it comes to the sale of material or tangible goods, the consumption tax would only apply to the purchase of new goods. Used items would never be taxed. Consequently, consumers would never pay the consumption tax at garage sales and thrift stores, and this would provide even further benefits to low income individuals and families.
Fourth, the consumption tax would result in significant savings to the State. Several State agencies would be eliminated, such as the Property Assessment Division, the Tax Equalization & Review Commission, and the income tax arm of the Department of Revenue. Moreover, there would be no more need for the State’s several business tax incentive programs, such as the Nebraska Advantage Act, the ImagiNE Nebraska Act and Tax Increment Financing (TIF). Last year, for instance, these tax incentive programs cost the State $200 million in lost revenues.
By eliminating all of these taxes, Nebraska would become the most tax friendly state for both individuals and businesses. Nebraska would become the most sought after state to live in. Retired folks will want to live here and young people will want to stay here. Moreover, the single-rate consumption tax constitutes the ultimate incentive plan for enticing businesses to move to Nebraska. So many people and businesses will want to move to Nebraska that we will have to build a wall around our state and have Colorado pay for it!