The Journal Star editorial board’s conversation with Gov. Pete Ricketts’ before his State of the State address, unsurprisingly, focused heavily on the specifics of his proposal to revamp Nebraska’s structure for property and income taxes.
What was surprising, though, was the radical revamp of his plan, which now aims to swing the pendulum more in favor of property tax relief than income tax cuts.
The plan would provide Nebraskans with an income tax credit for property taxes paid on their owner-occupied homes, as well as any farmland they own, and would reduce income taxes on both individuals and corporations. By repurposing the pre-existing property tax relief fund and eliminating a recently enacted personal property tax exemption program to fund the new proposal, Ricketts’ plan is essentially revenue-neutral.
It is not perfect. But it makes a significant turn in the direction of the property-centric, revenue-neutral reform for which we’ve long advocated in hopes of reducing Nebraska’s high overall tax burden compared with other Midwestern states.
Without question, the state needed property tax relief first and foremost. Seeing the governor admit that property tax reduction was Nebraskans’ No. 1 goal and produce a revenue-neutral plan to reflect that reality was refreshing.
Total property taxes levied on agricultural land increased by 164 percent – from $455.4 million to $1.2 billion – from 2006 to 2016 despite reductions in the percentage of valuation that could be taxed.
That runaway growth inspired a well-intentioned but misguided plan that proposed a credit for half of property taxes paid by Nebraskans to their local K-12 school district. Its $1.1 billion price tag, though, raised concerns about affordability. Ricketts warned that asking voters to enact such a plan could ignite a political “civil war,” pitting agricultural interests against countless other groups in the state, something he hopes to avoid.
Nebraska’s urban-rural divide needs no additional exacerbation.
In our meeting with Ricketts, the governor also talked openly about compromise and courting “pro-growth Democrats.” His more moderate, inclusive language was largely reflected by his new tax proposal.
However, at least two provisions within it give us serious pause.
For one, the plan to use an automatic trigger as a mechanism to increase the property tax credit limits flexibility and could drive up budget deficits – just ask Kansas or Oklahoma. Basing the trigger on actual revenues exceeding projected revenues, instead of year-over-year gains, could easily create situations where the state brings in less money than the previous year but remains all but obligated to increase credits.
Furthermore, while we appreciate the governor’s aim of benefitting mainly Nebraska farmers and homeowners rather than non-Nebraskans who own property here, we’re concerned about his plan’s constitutionality. Treating residents different from nonresidents, or one type of property different from another, might run afoul of both the U.S. and state constitutions.
The final version of Ricketts’ plan will almost certainly look different if enacted by the Legislature. The bill’s sponsor, Sen. Jim Smith of Papillion, is correct when he forecasts it has a “very narrow path” to the 33 votes necessary for its passage.
While some improvements remain needed, the governor’s vision of tax reform is now far closer to that of a majority of this state.
— Journal Star, Jan. 12, 2018