Few issues affect every resident of Nebraska more directly than property taxes. Although not the most popular topic, property taxes are vital for funding essential services like K-12 education.
Grace Belling-hausen
Recently, Nebraska senators and the public have aligned with Gov. Jim Pillen on the necessity of reducing property taxes by shifting the funding burden of public schools to government funds. However, the challenge lies in determining how the state will secure these funds.
To address what he would like to do regarding taxes, Pillen is looking to hold a legislative special session. With no clear plan of how to do that, Sen. Carol Blood says, the session is in violation of the states constitution.
“The Nebraska State Constitution clearly says that when the governor calls a special session, we need to know what it’s about,” said Blood. “The way most of us found out was in his weekly newsletter.”
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According to article IV-8 of the Nebraska Constitution, “the governor may, on extraordinary occasions, convene the Legislature by proclamation, stating therein the purpose for which they are convened, and the Legislature shall enter upon no business except that for which they were called together.”
Nevertheless, reducing property taxes will help young people purchase homes and help older residents retain their homes. The challenge lies in how to achieve that.
To replace the funding from property taxes for school operating expenses, state support would have to reach $4.2 billion, up from the current $1.6 billion, annually. Without a detailed plan, in recent town meetings held in various rural communities across the state, Pillen has suggested many ideas to replace these lost funds including increasing “sin taxes” and taxing some of the over 100 currently tax-exempt goods and services.
One of the currently tax-exempt items that may be considered for taxation is sugary drinks and candy. Six major cities have introduced this tax, but it has never been introduced state wide in the U.S.
A study by the National bureau of Economic research, found that lower-income individuals drink twice as many sugary drinks per day on average. However, the same study suggests that raising the taxes on these items are more likely to deter low-income families compared to middle and high-income families.
The proposed “sin taxes” will affect tobacco, vaping products and alcohol.
While studies vary on their impact on lower-income families’ ability to quit cigarettes, the data is clear. Based on a study from the U.S. Centers for Disease Control and Prevention, 25.8% of adults in Nebraska who earn less than $25,000 are smokers, while only 8.5% of adults who earn over $100,000 are smokers.
Alcohol use is the only area where “sin taxes” do not disproportionately affect low-income families. According to a study by the United Health Foundation, in Nebraska, higher income individuals ($75,000+ annual salary) are twice as likely to binge drink, and, due to their economic standing, will likely not be deterred by the increased sales tax, generating a higher tax revenue.
Nebraska gubernatorial candidate Carol Blood speaks during a town hall last week at United Steelworkers Local 286 union hall in Lincoln.
It’s important to note that while a low-income family with a $500 mortgage may see a $300 tax cut, a middle-class family with a $1,500 mortgage will see a $900 tax cut—three times the amount—while paying the same, if not less, in “sin taxes.”
Many of these suggestions have the potential to further the wealth gap among Nebraskans which has already been growing year over year.
“They keep saying we’re open to any proposals,” said Blood. “Well, in the last session, I proposed a ‘luxury tax.’ If you can afford a luxury car or a private jet, like Gov. Pillen has, you can afford a few extra pennies.”
A “luxury tax” does not affect low-income individuals but rather taxes high-priced items that are only affordable to the wealthy who can afford the premium.
Former President George H. W. Bush enacted a “luxury tax” nation wide in 1991, to generate additional revenue to reduce the federal budget deficit. The 10% surcharge tax applied to high-end furs, boats, yachts, private jets, jewelry and luxury cars. Former President Bill Clinton later eliminated the boat and yacht tax due to job losses in the yacht industry, but the luxury auto tax remained until 2002.
Historically, the “luxury tax” has been a partisan solution and if enacted at the state level, could generate significant revenue and help address the inequalities of sales taxes.
The concept is so ingrained in our culture that it’s even featured in Monopoly: land on the “luxury tax” square and pay $75 to the bank. If a thimble the tax, so can the ultra-rich.
While Nebraska, the most landlocked state, may not see much revenue from luxury yachts — new cars, jets and other high-end items could bring in sizable revenue.
As Irish playwright George Bernard Shaw once said, “A government which robs Peter to pay Paul can always count on Paul’s support.” Pillen, with a net worth of over $50 million, has publicly stated his opposition to welfare. It may take significant pressure from both sides to shift his focus from protecting the 1% to supporting low-income Nebraskans.
Another viable option is a tax proposal presented by Sen. Elizabeth Warren in 2017. If Nebraska enacted this at the state level, her “Ultra-Millionaire Tax“ would target Nebraskans with over $50 million in wealth. They would be taxed at an annual rate of 2% on wealth exceeding $50 million. For example, someone with $60 million would pay 2% on $10 million, equaling $200,000 generating state revenue annually.
While Nebraskans are in agreement that there should be no rise in income tax, it’s inarguable that these multi-millionaires would not experience a “lifestyle change” by this increased contribution.
These same earners would also benefit the most from the lowering of property taxes. Currently, property taxes for a $5 million home in Sarpy County is $99,000 annually, subtract the 40% reduction Pillen promises and they will now be paying around $60,000, so the tax increase would be closer to $160,000.
The same proposal also entails a 3% tax margin on wealth over $1 billion. I know what you’re thinking — Warren Buffet. Buffet’s current wealth sits at $129.8 billion, that’s $128.8 billion in wealth that could be taxed at 3%, equaling $3.8 billion in revenue for Nebraskans annually.
Pillen is only seeking $2.6 billion to enact the property tax reform. If we reduced this number of taxation to just 1% for billionaires — only affecting three Nebraskans in total, Daniel Hirschfeld, Henry Davis, and Warren Buffet, $1.318 billion would be generated annually.
With a myriad of potential solutions available, Nebraska must carefully craft a tax policy that is equitable and does not widen the wealth gap. Thoughtful and inclusive planning can ensure that funding public education is fair, without burdening low- and middle-income families.
Pillen can achieve this by holding property tax town halls in Omaha and Lincoln, which he hasn’t done, and expanding his advisory circle to include diverse constituents. By considering innovative and balanced approaches, the state can reduce property taxes and secure adequate funding for K-12 education. Blood’s concerns are valid, it requires careful deliberation and should not be rushed.
