A Third Day of Special Session Hearings

The OpenSky team weighed in on some marathon hearings yesterday at the Capitol, discussing responsible tax policy, transparent and prudent budgeting and forward-looking decision making by our state government. The topics being discussed during this special session are complex, and we are grateful for the engagement and expertise of Nebraska citizens and community-based organizations. Today’s lineup will include: 

 LB 16
This legislation, accompanied by proposed Constitutional amendments 4 and 5, creates what is known as the EPIC consumption tax. It has been introduced many times and was the subject of a failed ballot initiative this summer. The basic premise of the proposal is that state and local government entities would be prohibited from levying any kind of tax except excise taxes and a consumption tax, which is a broad-based tax on consumer goods and services. The rates at which the tax would be levied have varied by proposal. In the 2021 proposal, the rate was 10.64 percent, which was estimated to reduce state revenue by about $4 billion annually after four years of implementation. LB 16 puts the tax rate at 7.5%, but estimates from the Tax Foundation suggest that the EPIC plan would require a statewide consumption tax of 21.6% or higher in order to meet the state’s current budgetary obligations. OpenSky has investigated this proposal each time it has been introduced and recently estimated that a 22.1% tax rate would be required. 

We are also concerned about conflicts the proposal may create with federal government regulations that prohibit taxation of certain items, especially those purchased by the federal government itself. 

Further, the bill would most heavily affect low- and middle-income Nebraskans, who spend a much greater portion of their earnings on consumption activities than higher-income Nebraskans. Even without the EPIC option, Nebraskans who earn less than $30,000 annually spend an estimated 5.5% of their earnings on general sales and excise taxes, whereas Nebraskans earning between $141,700 and $252,600 spend 3.1% of their earnings. The EPIC option would likely increase this disparity. 

LB31 
OpenSky will testify in support of LB31, which creates an excise tax on individual incomes and creates the Tax Equity Cash Fund, which can be directed to the General Fund, the Education Future Fund or Property Tax Credit Cash fund, all of which can be utilized to provide property tax relief. This bill would levy an excise tax of 9.5% on every dollar earned above $1 million for individuals, or $2 million for joint filers and heads of households. This would be in addition to the yearly personal income tax cuts for the highest and second highest tax brackets that were passed in 2023.

According to this bill’s fiscal note, LB 31 will bring in $30.5 million in additional tax revenue this year and $44.7 million next year. While this is a positive shift towards progressive taxation, these new revenues will be outweighed significantly by the individual income tax cuts scheduled to come into effect over the next three years. According to the Legislative Fiscal Office, these cuts will cost the state $387 million in lost revenue this year and nearly $750 million by FY 28-29.