LINCOLN–Sen. Steve Erdman of Bayard recently proposed a legislative constitutional amendment that he said will hold everyone harmless.
“If we pass this, we will become the most enviable state,” he said.
The resolution, heard by the Revenue Committee in the Nebraska Legislature Feb. 12, would replace the income, property, inheritance and sales taxes with a single rate consumption tax, a move that no other state has adopted.
The proposed consumption tax would be taxable upon first purchase, Erdman said in a hearing. The tax would be applied to the consumption of new goods and services, and rather than a tax on what a person provides to the economy is a tax on what a person consumes.
Erdman also discussed a part of the proposal that would help aid lower-income Nebraskans. In order to prevent Nebraskans at the poverty line from paying consumption tax, the senator said that a prebate, an amount of money equal to what that person should pay in consumption tax for that month, will be sent to every Nebraskan.
As the members of a household increase, so to does the prebate check received to ensure that the proper amount of consumption is accounted for.
This consumption tax and prebate system would be unlike any in the United States currently, but Erdman isn’t concerned about being different.
“If you’re asking me whether we can afford to be different, then I’m going to ask you: How many states have a unicameral? I will say we can afford to be different,” Erdman said.
Even though Nebraska would be the first state to replace its tax system with a consumption tax, Erdman said that the Legislature would not have to reinvent the wheel. Instead, the resolution is modeled after one that Alabama has put forth, which Erdman believed would be effective in Nebraska.
“Would you like to live in a state with no property tax, income tax, inheritance tax, or sales tax? If the answer is yes, then help me,” Erdman said.
The senator said that the tax would be a dollar for dollar match to the old tax system, bringing in no more or less money than that of the old. With no hidden taxes and a prebate system aimed to aid low-income households, Erdman said he hopes the amendment will incentivize people to move to Nebraska.
“We’ll have so many people who want to live here that we will have to build a wall around the state, and Colorado will pay for it,” Erdman said.
But not everyone is as big a supporter of the resolution as Erdman.
Tiffany Friesen Milone, policy director at OpenSky policy institute, opposed the bill at the hearing. Milone said the bill had no definition of what the consumption tax rate would be and there are too few checks on where the money would come from to make up the revenue difference.
Milone said a report by a presidential advisory panel rejected a consumption tax at a federal level in 2005. The proposed consumption tax was similar to the proposed resolution because of the high rate that would be needed to achieve revenue neutrality.
She said, if the bill was passed, households with the lowest incomes would face some relief from taxes but as a result, middle-income households would face heavier taxes.
“Because the wealthy are unlikely to spend so much that they’d pay as much in sales tax as they had been paying in income taxes,” Milone said, “only those in the middle would be left to make up the difference.”
As a result of the bill being passed, the state would begin to tax goods and services that it previously had exempted such as groceries, health care, child care and private school tuition.
John Hansen, president of the Nebraska Farmers Union, also opposed the bill. After he heard the testimonies that were in favor of the bill, Hansen said he was not convinced that anyone actually knew where the taxes would go and the specifics of how the people’s taxes would lower. He said that if local governments required money or funding from the Legislature, then the local governments can only hope that the Legislature would be able to meet the budget requests.
“This approach takes away anything that remotely looks like a backup plan or a backdoor to be able to make up for shortfalls,” Hansen said.
The committee took no immediate action on the bill.