Nebraska voters could choose to replace property, income, sales, inheritance and estate taxes with a state consumption tax under a proposed constitutional amendment debated by lawmakers May 5.
If passed by the Legislature, LR11CA, sponsored by Bayard Sen. Steve Erdman, would place the question on the November 2022 general election ballot.
The amendment would prohibit the state and its political subdivisions from imposing a tax on property, income, inheritances, estates and the retail sale of services and most goods effective Jan. 1, 2024.
It would require the Legislature to enact a consumption tax that applies to the purchase of services and new goods, except for fuel, beginning on that date. The Legislature could authorize political subdivisions to enact their own consumption taxes.
Erdman said a consumption tax would be more fair than Nebraska’s current tax system, which he called “broken.” He said the new system would generate the same amount of revenue as the current one by eliminating exemptions and taxing services, many of which currently are not taxed.
If the amendment is approved by voters, Erdman said, the Legislature then would determine the details of how to impose and collect the tax.
For example, he said, lawmakers could create a monthly allowance for legal residents in order to offset the regressive effects of the consumption tax. The Legislature also should exempt business inputs and business-to-business sales from the new tax, Erdman said.
Sen. Robert Clements of Elmwood supported LR11CA, saying a consumption tax would be simple and easy to understand. He said the new system would promote individual saving and investment, reduce government administrative costs and boost economic growth by making Nebraska more attractive to businesses.
Sen. Mike Hilgers of Lincoln also supported Erdman’s proposal, saying it gives the Legislature the chance to discuss strategic changes to the state’s “antiquated” tax code.
Gothenburg Sen. Matt Williams opposed the measure. He said a consumption tax would be “disastrous” for Nebraska’s insurance industry, which currently charges a 1 percent tax on premiums. The amendment effectively would increase the premium tax to the suggested consumption tax rate of 10 percent, Williams said, driving insurance companies out of the state.
Also in opposition was Sen. Steve Lathrop of Omaha. He agreed with proponents that Nebraska’s current tax system is flawed but said replacing it with a consumption tax would be a “very risky proposition.”
He said the Legislature cannot predict how the new tax would change taxpayer behavior, including their tax-avoidance strategies, making it difficult to ensure that it would generate enough revenue to fund government services such as public schools.
Bellevue Sen. Carol Blood also opposed LR11CA, saying the majority of Nebraskans would pay more in taxes under such a system. She said a consumption tax would apply to certain goods and services, such as groceries and medications, that are not taxed currently.
Blood introduced an amendment that would replace Erdman’s proposal with a constitutional amendment requiring the state to fully fund the unfunded and underfunded mandates it has imposed on political subdivisions. She said such mandates are the root cause of high property taxes.
The amendment failed on a vote of 4-30.
LR11CA failed to advance to select file on a vote of 23-19, two votes short of the number required.