On Tuesday, Sept. 7, Steve Erdman and Jim Smith, a current and former state senator, respectively, provided a crowd of Scottsbluff citizens with their ideas for the future of Nebraska’s tax system. The next morning, they spoke with the Star-Herald and Gering Courier, Smith in person and Erdman by phone, to provide a closer look at what their plans would mean for the state.
Smith’s Blueprint Nebraska Tax Modernization Plan and Erdman’s EPIC Consumption Tax plan have plenty of similarities. They both eliminate the state’s inheritance tax, for one, and they both use some of the same economic models and resources. But digging into the nitty-gritty of the tax plans, there are significant differences as to how they function and which goods and services they would deal with.
Blueprint Nebraska Tax Modernization Plan
The Blueprint Nebraska plan has a simple premise: tax new forms of goods and services in order to lower income and property taxes. It’s a plan heavily focused on growing the economy, with the goal of both attracting people in the 18-34 age group from other states, and ensuring Nebraskans in that age group don’t want to leave the state.
Since this age group often starts off in lower existing tax brackets, “we need to give them a leg up,” Smith said. “...We’re not so bold as to say taxes alone are going to drive that decision.”
Other Blueprint initiatives would address those factors, such as prosperous communities, affordable housing and access to transportation. But the Blueprint tax rates, Smith said, “seemed to line up well with the intent of increasing the young Nebraskan workforce.”
The Blueprint rates would see people earning under $50,000 annually pay no income tax, and a decreasing amount from 5.6% to 4.99% over the course of the next decade if making more than $50,000. Businesses would operate under a similar playbook: 4% taxes for those making under $100,000, and the same incrementally lowering 5.6% to 4.99% amount for those making more than that. The brackets were chosen to help appeal to those just starting their careers, and those close to retirement.
Smith said Nebraska is in a battle with neighboring states like Wyoming, Iowa, Kansas and the Dakotas for its population of young adults and families. Business incentives under the Blueprint plan would encourage job growth and an increased focus on research and development to make the state a more desirable place to live for that demographic. Smith estimated the population of 18-34-year-olds would grow by 43,000 by 2030 if the plan is enacted. He also said some 65,000 jobs would be created.
In order to lower the property and income taxes, existing excluded goods and services would need to be taxed. These would include vehicle repair services, home maintenance services, admission to zoos, aquariums and professional sporting events, legal services, personal care services, motor fuels and newspapers. Taxing all these, and several other goods and services would increase revenue at the state and local levels by $1.2 billion by 2031.
“We can use that to buy down the income tax, primarily on individuals,” Smith said.
Health care services and unprepared food would still not be taxed. The newly-taxed sales items would also offset a property tax decrease of around 20-25%, as well as help pay for school funding.
Aside from increasing economic growth, the Blueprint plan aims to ensure it pays for itself in a way that doesn’t harm Nebraska’s competitive standing amongst peer states.
“We want to have multiple supplies of revenue so we’re predictable and stable,” Smith said.
Erdman’s EPIC plan would be more of a replacement than a restructuring of the state’s tax system. It would see all property and income taxes eliminated entirely while implementing a new form of sales tax, the consumption tax. The tax would encompass all new goods consumed, save for business-to-business goods, and all services save for business-to-business services. Instead of varying sales tax rates, it would implement a single rate of 8.97% for all of those items.
This would mean no taxes on used items or items purchased for business use.
“We’re going to have more consumption and more business activity, so the base will grow substantially,” Erdman said. “...The more simple the tax code is, the more compliance you’ll have and the less cheating.”
He predicted the tax code change would lead to 38,000 new jobs by 2024, which is when the plan would take effect if passed. The consumption tax rate, Erdman said, would decrease incrementally to around 8.12% by 2028.
The cost of services would increase, and nonprofit, religious and government institutions would also start to be taxed under the EPIC plan.
To offset the tax rate, every citizen would receive a pre-bate eligible to their family’s filing status according to the national poverty level at the beginning of every month. The monthly amount would be calculated by the national poverty level of a person’s household size, multiplied by the consumption tax rate, divided by twelve. Anyone making less than $12,800 annually, the national poverty rate of a single person, would not have to pay any consumption tax at all. Since low-income residents currently pay sales tax, Erdman said, this way the system would be progressive: those who cannot afford to pay the tax would not.
The economic development created by the plan, Erdman said, would even go further than local taxes. Those would also be replaced by the consumption tax.
“I don’t know how you can incentivize someone better than taking away all their taxes,” he said.
Without property taxes, schools would be paid for via the county treasurers paying for them and being reimbursed by the state. The state’s cash reserves would ensure the state government can operate properly.
“There’s not a better time to make the change because we’ve got $1 billion in the rainy day fund,” Erdman said.
He said the EPIC plan doesn’t make any cuts to Nebraska’s budget.
There’s one final difference between the plans: Erdman’s is a particular bill, to be voted on in the legislature. If that fails, he aims to create a voter drive to put the EPIC plan on the ballot for the 2022 legislative session.
Blueprint Nebraska’s plan, meanwhile, is a framework, one in a series of economic Blueprint Nebraska initiatives.
The Blueprint Nebraska Tax Modernization Plan just wouldn’t change a "broken tax system," Erdman said.
Smith said the EPIC plan is too focused on the here-and-now and not forward-looking enough. The tax plans are competitors, vying for audience attention in town halls across the state.
Time and the Nebraskan taxpayers will decide which, if either, will prevail.