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Income tax cuts will be protected during discussions on property tax relief in Nebraska, says governor

Gov. Jim Pillen leads a town hall meeting on his ideas for property tax reform at the Columbus Area Chamber of Commerce in his hometown of Columbus on Wednesday, June 26, 2024. (Zach Wendling/Nebraska Examiner)

COLUMBUS, Nebraska — The funding path for Gov. Jim Pillen’s property tax reform ideas will likely continue to focus on sales and “sin taxes,” and he says “the income tax will not be touched.”

At various town hall meetings across the state, Pillen has claimed his solution to lowering property taxes is a broader sales tax base, which critics say could raise taxes on poorer Nebraskans. Unlike in the spring, the governor has recently focused more on eliminating certain sales tax exemptions and increasing the sin tax. But he is no longer talking about raising the 5.5 cents on the dollar sales tax rate.

“We need to be competitive on income tax, and then we need to get a competitive property tax,” Pillen told reporters on Wednesday.

Future town halls on property tax

A spokesman for Gov. Jim Pillen confirmed that no town hall meetings on property taxes will be scheduled for the week of July 1. Pillen has led 26 town hall meetings statewide so far, mostly in central and western Nebraska.

It is unclear if more town hall meetings will be scheduled before a special session on property taxes is expected to begin on July 25. Pillen has announced he will lead a 12-day mission trip to Indonesia in July. No town hall meetings have been held in the state’s two most populous cities, Lincoln and Omaha.

“Keep this great victory”

Last year, lawmakers passed a long-awaited reduction in state income tax rates This will Reduction of top rates to 3.99% by 2027.

Pillen is now pursuing his stated goal that the state will deduct or shift a total of 40% of the state’s tax burden from property taxes by the end of 2024 – his second year as governor. That’s about $2 billion, and about half of that still needs to be done to reach Pillen’s goal.

In a (n Company Podcast This week, Jim Vokal, CEO of the Omaha-based think tank Platte Institute, joined Platte Institute senior policy adviser Michael Lucci in calling for protecting the income tax changes – which Lucci called “the best tax reform of any state in 2023.”

The Platte Institute duo said the state should implement this plan unless “some unforeseeable extreme event” occurs.

“Hold on to this great victory,” Lucci said. “Secure it and then let’s all decide together what we do about the property tax.”

Future local and state spending

The podcast was created in conjunction with the release of the Platte Institute own report on property tax reformwhich contains some recommendations similar to those of pills.

One of them calls for strict caps on spending increases at the local level, which Vokal told the Nebraska Examiner will result in “stopping the bleeding that accompanies annual increases in property values.”

Valuations increased by $32 billion in 2023, the largest single-year increase in state history, while nearly $300 million more was collected in property taxes across the state. In most cases, when valuations increase, more taxes are collected, unless local tax rates decrease.

Lucci said elected officials should vote every time property taxes could increase by a dollar or more, and should ask the people to vote on major tax increases that go beyond a “hard cap,” such as an increase above the rate of inflation.

“This is the ultimate form of local control,” Lucci said on the podcast. “A soft cap on the first dollar, a hard cap on the amount that people think is appropriate.”

“The whole range of arrows in the quiver”

But Pillen’s desire to rely solely on sales tax to solve a recognized crisis could complicate his efforts, said Rebecca Firestone, executive director of the OpenSky Policy Institute.

She said the revenue losses resulting from the income tax cuts would pose “a significant complication” for a governor who wants to solve a recognized crisis but does not want to “consider the full range of state tax policy options.”

Firestone said the latest estimates she has seen regarding the gradual reduction in income tax rates would result in about $1 billion in lower state revenues in 2027.

If this is postponed, it could mean that Pillen has about $600 million at his disposal to implement his ideas, including the State takes over K-12 school funding.

“They’ve made a lot of spending commitments for 2023,” Firestone said of the lawmakers, pointing to a new state prison, a $1 billion education fund and the Perkins County Canal. “If some of those spending commitments were put back on the table, it could potentially free up revenue.”

Firestone said “sin taxes,” such as those on cigarettes, Vaping products and alcohol have shown that tax increases have a positive impact on public health. However, they are not the best general revenue sources that might be needed for Pillen’s ideas.

Questions about school funding

Many future consequences of Pillen’s “bold plan” for the state to take over the property tax share of K-12 funding must be considered, Vokal said. Among those questions is how to offset the loss of local control and participation by the state’s 244 school districts.

“I’m not saying we can’t achieve this or that we shouldn’t go in this direction or support parts of it, but you have to figure out how you’re going to distribute the funds and whether there’s going to be spending controls,” PIllen said.

Vokal and Lucci joined Pillen in calling for a more uniform goods and services sales tax system, but Vokal cautioned against taking commercial or agricultural inputs into account.

He said Pillen’s proposal to remove exemptions for certain inputs and tax them at a lower rate per purchase, such as two cents on the dollar, still complicates policy.

“If you want to finance education, broadening the tax base is fine and smart, but you need a uniform tax law,” said Vokal.

Firestone said school funding needs to include discussions about student achievement.

A different spending future

Firestone added that it’s difficult to analyze Pillen’s latest ideas without formal proposals or ideas, “although we stand ready and are following this very closely,” but she said the recent tax measure that failed to pass in the spring provides some clues.

“We don’t see any proposals at this time for revenue increases that would be significantly different in nature,” Firestone said, adding that it was difficult to say who would ultimately benefit.

Pillen told reporters on Wednesday that taxpayers are not likely to feel the impact of his ideas until early 2025, as many budget plans for the coming fiscal year are already in the works.

Still, Vokal said local political subdivisions need to plan ahead.

“You have to understand that we are looking at a different future,” Vokal said. “And that future means reining in spending. It sounds like the government might take over education and control that spending.”

The post “Income tax cuts will be protected amid discussions over property tax relief in Nebraska, governor says” first appeared in the Nebraska Examiner.

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