University of Nebraska professor: Tax reform is an issue of state versus local government control

(The Center Square) – The current debate over modernizing Nebraska’s tax system centers around “re-balancing” the state’s sources of revenue, University of Nebraska/Lincoln Economics Professor John Anderson told The Center Square.

“That means reducing reliance on property taxes and extending the sales-tax base,” Anderson said.

That can be easier said than done, he stated.

“The property tax is a local tax – school districts, cities and counties,” Anderson said. “And the sales tax is primarily a state-level tax, although there are local option taxes in cities as well.”

Changing those taxes touches on the roles of state and local governments, which is particularly a touchy issue with school systems, Anderson said.

“If you rely less on the local property tax to fund schools, you rely more on state funding and that has its complication in regard to local control of schools,” Anderson said. “This is a long-standing issue in Nebraska. These issues have been with us for a long time.”

Property tax reform is on the table in the Nebraska Legislature this year with Gov. Pete Ricketts supporting a bill capping the growth of local property taxes to 3% annually. Nebraska property taxes have increased by about 52% over the past decade, compared to 18% inflation and 48% income growth, according to the State Department of Revenue.

“There are states, especially in New England and the East Coast, that have a greater reliance on property taxes than we do,” Anderson said. “But Nebraska is in a second tier of high reliance on property taxes. We’re relatively high. That reflects the political desire to have local control and a history of that kind of attitude.”

State Sen. Tom Brewer, R-Gordon, has proposed capping the amount of money local school systems can collect from property taxes. Under a proposed constitutional amendment, school systems could collect no more than 33% of its budgets from property taxes.

About 70% of school funding in Nebraska is from property taxes, compared to 40% nationally, Brewer told The Center Square.

“There’s a point where that spending becomes so great, the school districts are putting the landowners in a bad position, especially in our rural areas,” Brewer said.

If the state picked up the entire tab for education, it would cost about $1 billion annually by some estimates.

There also have been discussions of expanding the state sales tax to generate more revenue and reduce pressure on property taxes. That could include charging sales taxes on services such as medical care, Anderson said.

“I think there would be reluctance to do that,” he said. “Sales tax systems, since their origin, have been designed to tax goods, not services.”

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