What’s the status of property tax relief?
For 2021, the Nebraska Legislature increased funding for the Property Tax Credit Fund by $25 million, to a total of $300 million.
The state distributes the money from the fund to local taxing subdivisions. Then, your county treasurer credits your property tax bill based on your valuation. However, it has no bearing on how much local property taxes are actually levied, and Nebraska still has the country’s 7th highest average property tax rate.
This year, the Department of Revenue reports that non-ag real estate owners will receive a credit of $107.55 for every $100,000 in assessed property value. For ag landowners, the credit is worth $129.05 for every $100,000 in assessed value.
A hypothetical owner of a house assessed at $200,000 in Grand Island might pay around $4,350 in property taxes. With the credit, they’d get $215.10 taken off their bill.
Due to the increased size of the fund and a slight decrease in overall ag land values, the state is also offering a larger credit than ever before. Plus, an additional Property Tax Incentive income tax credit, costing a total of more than $500 million, will be available when you file your state income taxes next year.
At least on paper, this is all certainly good news for Nebraskans who own property, since it may return some of the additional cash they’ve shelled out in recent years.
In Hall County, residential property values have increased by an average of just under 4% a year over the past decade. Some communities and individuals have seen even greater increases.
Though once again, the property tax bill will not be directly affected, rather than paying the original $4,350, the effective cost for our hypothetical taxpayer might be something like $3,700.
That outcome alone will have some elected officials taking a victory lap. But the gains we’re seeing here may not be sustainable due to how Nebraska currently pays for state and local government.
These property tax relief programs use your state income or sales tax dollars to pay you (or your property taxes), and there is a limited amount of new money that can be spent that way every year.
So, if local governments take your $215 credit and raise your property taxes by $215 anyway, one of the programs is already canceled out unless the state kicks in even more.
And even the money you receive back directly on your state income tax comes at a cost. It can’t be used to buy down any of the high taxes we pay, so potentially, you could be paying higher income taxes someday to keep the program going, along with your rising property taxes.
If we’re going to be spending nearly $1 billion (or potentially more in the future), Nebraskans should be getting a lot more return on their investment. There are many other taxes that have a significant impact on our state’s economic competitiveness that could be completely eliminated, or at least scaled back, for that kind of money.
The tax system that results from this much spending should be simpler, more sustainable, and more supportive of economic growth than what we started with.
That is why Nebraska needs tax modernization, to make our state competitive in the 21st Century while also fundamentally reforming current policies that don’t make our tax code more attractive to new residents or businesses.