Property taxes are a hot button issue, to say the least. In a Platte Institute online survey taken last summer, 48% of respondents stated reforming property taxes should be the highest priority for the Nebraska Legislature. And yet in 2019’s long legislative session, no significant, structural reform was accomplished.
Consequently, an effort has been launched to push for a constitutional amendment ballot initiative to change policy. The current proposal, if it collects enough signatures, would appear on the 2020 ballot. It aims to rebate 35% of the property taxes Nebraskans pay.
In the status quo, property tax relief comes from the Property Tax Credit Act. A set amount of money from state sales and income tax is distributed to property taxing subdivisions, who then reduce the property taxes due by that amount, based on each individual property owner’s valuation. The ballot initiative would instead provide a direct rebate to taxpayers through a refundable state income tax credit. In both cases, the actual property taxes levied by political subdivisions do not change.
There are pros and cons to the rebate approach.
For one, state senators could simply raise other taxes to make up for the cost of paying for the tax credit. If taxes were increased, the rebate may not have as positive an impact on taxpayers as supporters hope. However, if the rebate is passed, and no tax changes are made, core state government services could suffer. This problem will be compounded by growing state responsibilities like Medicaid expansion.
Of course, there is a justifiable amount of frustration that led to this proposal, now being called the 35% Solution.
Rural landowners feel the brunt of the property tax. In theory, other taxes could offset their disproportionate impact, and there is room to raise new revenue in Nebraska without raising tax rates. The current tax code contains many arbitrary exemptions, particularly within the sales tax. As one example among many, no sales tax is charged on a ticket purchased at Omaha’s Henry Doorly Zoo, while admissions to other cultural and educational institutions in the city are taxed.
If the Legislature expanded the sales tax base, this could satisfy voters. In fact, 55% of respondents to the aforementioned survey said they would rather pay more sales tax in exchange for less property tax. In a later scientific survey, 47% of respondents said they would be willing to pay sales tax on exempt goods and services if the revenues were used to reduce property taxes.
However, the political showdown in the final days of the 2019 Unicameral over business incentives and property tax policy sheds light on how fixing the property tax issue through the Legislature remains an uphill battle. This is where the ballot initiative could come in.
If state senators see popular support for such a rebate program heading into 2020, it will force more public, substantive discussion and urgency on any action the Legislature might take. Senators on the ballot in 2020 will need to make their position on the 35% Solution known. In turn, there could be a greater focus on drafting a bipartisan property tax reform bill in the next legislative session.
Additionally, senators who are worried about the impact a rebate could have on core government services will have to either oppose the initiative with full force, provide an alternative to the ballot initiative, or begin to consider ways the Legislature might fund the rebate if it were to be approved by voters in 2020.
At the end of the day, more discussion about the issues facing this state is a good thing. No matter the outcome, the potential ballot initiative could apply the necessary pressure on the Nebraska Legislature to come up with a solution and alert more Nebraskans to the scope of the problem.