The Legislature's Revenue Committee unveiled a revised tax reform package on Wednesday that would increase the state sales tax rate by three-quarters of a cent in order to help fund $500 million in additional property tax relief.
The proposal will be filed as an amendment to a pending tax bill (LB289) and subjected to a public hearing on April 24.
Revenue Committee Chairwoman Lou Ann Linehan of Elkhorn revealed the revised plan during a news conference in the Capitol Rotunda with the other seven members of the committee standing behind her.
Under the plan, which uses state aid to schools as the vehicle for providing property tax relief, funding for K-12 education through state sales and income taxes would jump from $1 billion to $1.5 billion a year, Linehan said.
All new revenue generated by the sales tax increase would go directly to the state's property tax credit fund and then roll into school aid, she said.
The average decrease in property taxes would be 20 percent, Linehan said.
In addition to the proposed increase in the state sales tax rate, the cigarette tax would be raised from 64 cents to $1 a pack and a number of sales tax exemptions, including those currently applied to candy and pop, would be eliminated.
Gov. Pete Ricketts immediately branded the tax proposal as "the largest tax increase on working Nebraskans in the history of our state."
"It's a transfer of half a billion dollars from family budgets for government spending," the governor said.
"I am alarmed that senators are even considering this and I urge the Revenue Committee and the full Legislature to reject these tax increases."
Next Wednesday's hearing will be held before the Revenue Committee, the Education Committee and the Retirement Committee and is likely to begin shortly after the Legislature adjourns for the day.
Asked whether all members of her committee -- which is composed of four rural senators and four lawmakers from metropolitan Omaha -- support the revised proposal, Linehan said: "Are they in agreement on every detail? No."
But, she said, they are in agreement with the need to shape a property tax relief plan.
Under the current proposal, every school district would get at least one-third of its funding through state aid, Linehan said, which for many would reduce a dependence on property tax revenue.
"Property owners would receive a 10 percent reduction in valuation across the board," an accompanying news release stated.
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The committee is on a collision course with Ricketts, who has been actively engaged in public appearances directed at generating opposition to proposed removal of sales tax exemptions and to any increase in taxes.
The current state sales tax rate is 5.5 percent.
"The governor and I are friends," Linehan said, and she supports his efforts to rein in state spending.
"But this is not raising taxes; this is cutting them. Rather significantly," Linehan said. "It's a very good deal for taxpayers."
"Property taxes in Nebraska are ridiculous," she said. "This reduces everybody's property taxes, and it increases school aid a lot.
"We either stare at the problem or actually try to fix it before we have a crisis," she said.
Looming over the horizon if the Legislature does not act is an initiative petition drive to propose a constitutional amendment that would provide a state income tax credit for 35 percent of local property taxes paid.
If approved by voters, that would trigger sharp increases in state taxes or substantial reduction of funding support for state programs and services, or both.
Linehan said "it's going to take a lot of work" to win the Legislature's approval for the committee's ultimate proposal.
"And probably some compromise," she added.
Wednesday's proposal was the latest version of an evolving plan that has not yet been submitted to a vote in the committee. And there have been recent signs that the committee may not be fully united.
The legislation will need the support of at least 33 senators in the 49-member body to quash a filibuster by its opponents and then the votes of at least 30 senators to override what would be a certain gubernatorial veto.
Ricketts is proposing a $51 million-a-year increase in the state's $224 million property tax credit fund and a proposed constitutional amendment to limit the future growth in property taxes to 3 percent a year.
Wednesday's committee proposal marks "a very large step in the right direction" toward tax reform, Linehan said, "not the end of the road."