Legislative Testimony for LB497: Adopt the School District Property Tax Authority Act and change revenue and taxation provisions

Members of the Revenue Committee, I am here to testify on LB497 in a neutral capacity.

Nebraska currently has the 7th highest property tax in the nation and is in need of property tax reform that addresses the underlying problem of a local tax system that imposes too great a burden on the state’s economic growth.

LB497 focuses on an interesting issue that we’ve received a lot of feedback on since we began surveying Nebraskans on property taxes last year.  Much of the property tax reform discussion has historically revolved around revenue, but the policy included in LB497 also focuses on another important factor, which is a property tax limitation for school districts.

Many property taxpayers, especially agricultural, feel that they are at a disadvantage in their communities in regards to school district taxes because they are disproportionately higher than the other locally levied taxes. Of all the property taxes levied at the local level, school district taxes make up approximately 60 percent of all property taxes paid. 

A Platte Institute poll conducted last month found that a strong majority of Nebraskans supported a new state law to further limit how much property tax local taxing subdivisions could collect, either by limiting property tax rates or valuations.

The Platte Institute supports property tax reform and an expansion of the sales tax base to sales which are not business inputs.  Today we have an increasingly service-based economy, and the sales tax base needs to be updated to account for this change. This principle of including services in the sales tax base is agreed to across the philosophical spectrum among tax policy experts.

There will be some discussion on the proposal to levy sales tax on groceries.  On a historical note, when the state levied its first sales tax in 1967, this included groceries, or food for consumption.  This exemption was put into place in 1983, so groceries were taxed in Nebraska for 16 years before a change was made.  Federal law prohibits sales of groceries purchased with SNAP, or food stamp benefits, from being subject to tax.  Today, there are 14 states that tax food with some only allowing the tax to be levied by local governments.  Hawaii, Idaho, Kansas, Oklahoma, and South Dakota all tax food but have chosen to offer a rebate or income tax credit to compensate the poor.[i] (see handout)

However, where our opposition lies is that we do not believe it is wise to fund property tax reform by increasing other tax rates. The increase in the cigarette tax and alcohol taxes are not reliable sources to replace revenues such as the property tax.

Excise taxes when used to raise revenue are notoriously regressive.  The use of higher cigarette and alcohol taxes to fund public education is not a principled use of excise taxes.  Education is an important enough government service that taxpayers should be willing to pay broad-based taxes.  Any tax that is focusing solely on the rich or the poor will usually not work.

Thank you and I would be happy to take any questions from the committee.