Consumption tax proposal considered

Nebraskans could vote to replace property, income and other current taxes with retail consumption and excise taxes under a proposed constitutional amendment heard Feb. 3 by the Revenue Committee.

Sen. Steve Erdman of Bayard, sponsor of LR264CA, said replacing Nebraska’s “broken” tax system with a consumption tax would boost employment and investment.

Such a tax would be fairer, easier to understand and less expensive for the government to administer while generating the same amount of revenue as the current system, he said.

If passed by the Legislature, LR264CA would place the question on the November 2022 general election ballot. The change would go into effect Jan. 1, 2024, if voters approve it.

Marvin Reichert of Elm Creek testified in support of the proposal, saying a consumption tax would be more equitable than the current tax system. Taxing all retail sales would broaden the tax base, resulting in a lower tax rate for everyone, he said.

Kelley Hasenauer of North Platte also testified in support, saying Nebraska’s strong fiscal position makes this an opportune time to change its tax system. She said the current system is an “incredible burden” for small business owners like her and that a consumption tax would encourage saving and investment.

“There is no doubt that taxes would be fairer across the board, saving would increase and the long-term economic boost for families and businesses would be astounding,” Hasenauer said.

Several testifiers who supported LR264CA said its main benefit would be the elimination of property taxes.

Jeanne Greisen of Lincoln said the property taxes on her house have increased by 126 percent over the past six years despite efforts by the Legislature to provide property tax relief.

Walter Fredrickson of Omaha said Nebraska’s property taxes are much higher than most other states and have a real influence on whether people decide to move when they retire.

Testifying in opposition to LR264CA was Tiffany Friesen Milone of OpenSky Policy Institute. She said a Nebraska consumption tax rate would need to be at least 20 percent to generate the same amount of revenue as the current tax system.

Additionally, Friesen Milone said, a consumption tax would fall disproportionately on middle income Nebraskans and leave local governments entirely dependent on the state for funding.

Bryan Slone testified in opposition to the proposal on behalf of the Nebraska Chamber of Commerce and Industry, Greater Omaha Chamber of Commerce and Lincoln Chamber of Commerce.

To raise the same amount of revenue as the taxes LR264CA would repeal, he said, a consumption tax would have to apply to services such as health care and education. A 15 to 20 percent consumption tax rate also would drive retail businesses to neighboring states, Slone said.

“With 45 percent of our economy within [an] easy drive from state borders,” he said, “this would be an economic development act for Council Bluffs, North Sioux City and other communities on our border.”

The committee took no immediate action on the proposal.