A leading Nebraska farm group that has long pushed lawmakers to lower property taxes on rural land has broadened its pitch to benefit home and business owners, but some senators are more interested in cutting income taxes.
Last week, the Nebraska Farm Bureau Federation called on lawmakers and Gov. Pete Ricketts to reduce property taxes by expanding the state's sales tax base.
Steve Nelson, the group's president, said getting rid of sales tax exemptions would generate additional money for the property tax credit fund, a state account that reimburses local governments so property owners don't pay as much in taxes. Nelson said the property tax credit fund was the best approach because it offset taxes for urban as well as rural residents.
"We need to have property tax reform at every level," he said. "This is certainly a big issue for farmers and ranchers, but it's not just an issue for them."
Nelson said lawmakers should eliminate sales tax exemptions for some goods and services, such as lottery ticket sales, legal help, haircuts and car repairs. He said his group was also open to raising the sales tax, as long as the revenue was used to lower property taxes.
"This is really about equity and fairness and moving toward a more balanced system," he said. "Property tax payers are paying more than their fair share."
Agriculture is Nebraska's largest industry and lawmakers pay attention to the farm bureau's arguments, especially at a time when increased farmland values have caused property taxes to soar even as farm incomes dropped.
However, some Omaha area lawmakers criticized a measure approved last session that steered $20 million into a tax credit solely for agricultural landowners.
And at a time the state faces an $895 million shortfall for the budget cycle that ends in 2019, lawmakers like Sen. Jim Smith of Papillion are focused more on individual and corporate tax rates.
Smith, who is running for chairman of the Revenue Committee, noted that property taxes are driven primarily by local spending on K-12 education, county government and community colleges. He called for changes that would help the broader economy.
"I feel very strongly it's in the interest of all of Nebraska to not focus solely on property taxes," Smith said. "We need to take a more comprehensive approach. I know (farmers and ranchers) are suffering because of the property tax. However, we also need to make sure we strengthen the rest of our economy so we can withstand these downturns."
Smith argued that the recent slowdown in state revenue, driven in part by commodity prices declines, illustrates the need to diversify the economy with non-agriculture businesses.
He said he was particularly concerned that the new Republican majority in the Iowa Senate will approve tax cuts that would make Nebraska less competitive.
"That's going to leave us in the dust," he said.
Smith said he expects to see a package next year that would reduce personal and corporate income tax rates and possibly reduce the number of brackets in the future, from four to three. In future years, any surplus money would be used to further lower rates until they reached a certain target.
Passing a major package that lowers income and property taxes could be difficult next year given the state's budget challenges, which will require some combination of spending cuts, drawing from emergency funds, and possible tax increases.
Renee Fry, executive director of the OpenSky Policy Institute, a tax policy think tank, said eliminating sales tax exemptions for some services makes sense because the state economy now relies more heavily on them. But Fry said getting rid of exemptions could have unintended consequences, such as penalizing small firms that hire outside attorneys, whereas large companies can maintain in-house lawyers.
Fry said a 2015 Department of Revenue report found cutting sales taxes would help the state economy more than cutting income taxes, although neither cut would pay for itself.
Fry also noted cutting income tax rates would give the biggest boost to high-income residents.
"If you're reducing the top rates, it predominantly helps the very wealthiest people," Fry said. "And if you pair that with any type of sales tax expansion, it's going to amount to an increase on the middle class."