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State senator says sales tax increase is necessary to lower property taxes by 40%

LINCOLN — To lower property taxes, Nebraskans will need to pay more in sales taxes, a key state senator said Wednesday.

State Sen. Lou Ann Linehan said a state sale tax increase of up to 1-cent — a tax hike that’s a non-starter for some conservatives and progressives — is necessary if Gov. Jim Pillen is to achieve his goal of reducing property taxes by 40%.

“I don’t know how we’re going to get there (otherwise),” Linehan said.

State Sen. Lou Ann Linehan of Elkhorn  (Zach Wendling/Nebraska Examiner).

The senator, who heads the legislative committee that deals with tax issues, spoke as a package of bills were introduced Wednesday as part of Pillen’s stated goal of ‘transformative” property tax relief.

The package doesn’t include the governor’s much-panned idea of raising sales taxes by 2 cents — which would give Nebraska the highest state sales tax in the nation at 7.5 cents.

Instead, a bill introduced by Linehan would increase the state sales tax rate — which excludes local sales taxes charged by cities — from 5.5 cents to 6.5 cents.

Could be less than 1-cent hike

The senator said she hopes the 1-cent increase could be pared back if other revenue-raising ideas generate sufficient funds.

Those proposals, introduced this week, have included eliminating tax exemptions on legal, accounting and advertising services for businesses, increasing taxes on cigarettes and vaping products, doing away with a tax exemption on purchases by data centers, and imposing taxes on now-exempt soda pop, candy and veterinary/grooming services for pets.

At least one state senator said a sales tax hike is a non-starter for him.

State Sen. John Fredrickson of Omaha.  (Zach Wendling/Nebraska Examiner)

Omaha Sen. John Fredrickson said sales tax increases impact low-income and working-class Nebraskans more significantly and might blunt the state’s efforts to attract more people into the workforce, which would increase tax revenue.

“Young people really do notice sales taxes,” Frederickson said.

Glenvil State Sen. Dave Murman (Zach Wendling/Nebraska Examiner)

One rural senator, Dave Murman of Glenvil, said he’d rather see tax exemptions repealed than see sales taxes increased.

“To reduce property taxes, which are some of the worst in the country, we may have to shift it onto sales taxes,” Murman said.

Several conservatives, from former Gov. Pete Ricketts to the Koch Brothers-related group, Americans for Prosperity, have opposed raising one tax to reduce another, labeling it a tax shift.

One progressive group, the OpenSky Policy Institute, repeated its opposition Wednesday to hiking sales taxes as regressive, saying they affect low- and middle-income Nebraskans harder because they have less of an ability to pay more.

Sales tax hike would put Nebraska in top 10

Rebecca Firestone, OpenSky’s director, said that a 1-cent increase in the state’s sales tax rate would rank Nebraska among the top 10 highest rates among the states. At 6.5 cents, Nebraska’s would tie Kansas for the highest among its neighboring states, upping the price of cars and other goods young families need.

“A revenue system where everyone pays according to their ability is critical in creating opportunities for everyday Nebraskans,” Firestone said. “But this tax shift targets the largest share of property tax relief to the largest property owners, many of whom don’t even live in the state.”

Linehan, who is in her last year in the Legislature due to term limits, pushed back on that.

She said that property taxes are the most regressive tax in Nebraska and that since sales taxes are not charged on purchases of groceries, rent, gasoline and car repairs, an increase in sales tax would not impact lower income citizens that much.

If Nebraskans see a 40% decrease in their property taxes, Linehan said, they’ll be OK with an increase in sales taxes and paying taxes on more services.

Past steps haven’t worked

Property taxes have risen by $1.8 billion over the past decade, the senator added, despite several steps by state lawmakers to reduce their impact.

She pointed out that the Legislature has already cut property taxes by about 20% in recent years through increases in state tax credits provided to property taxpayers. The remaining 20% would be picked up via new tax revenue by taxing pop and candy, removing exemptions and tapping unused cash reserves of state agencies.

Other aspects of the property tax package proposed by Gov. Pillen will be introduced later, Linehan said, mentioning his call for a “harder” cap on spending by K-12 school districts and “front loading” the tax credits provided by the state.

Pillen is scheduled to deliver his State of the State address on Thursday morning in which he will likely outline those proposals.

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