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Nebraska Unicameral narrowly votes down consumption tax

Consumption tax in Nebraska
Consumption tax in Nebraska
Published: May. 5, 2021 at 9:37 PM CDT
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LINCOLN, Neb. (WOWT) - Nebraska state senators narrowly rejected a resolution Wednesday that called for a dramatic change in the way state residents pay taxes. A constitutional amendment would be used to establish a consumption tax. It fell two votes short of advancing on the first round. Ultimately, the issue would have gone to voters in November 2022.

But the idea of the consumption tax isn’t quite dead yet: a candidate for governor wants to get it adopted.

So how exactly would this have worked?

The 10% charge on new goods and services — except for fuel — would mean Nebraskans no longer pay state income taxes, property taxes, inheritance taxes.

Supporters of the consumption tax said it would be a boon for the state, keeping those already here and attracting new residents.

“We have been discussing this tax problem for 54 years,” State Sen. Steve Erdman of Bayard said during Wednesday’s legislative session.

For more than five hours Wednesday, Erdman defended the idea of the consumption tax. But some senators questioned the logic of taxing groceries — and the disproportionate impact that it would have on those with lower incomes.

“What are we thinking about wanting to tax groceries again?” State Sen. Carol Blood of Bellevue asked during the debate.

Some said lawmakers could create a monthly allowance to help offset that.

“Nebraska could be trailblazers for the country with this,” said State Sen. Joni Albrecht of Thurston.

“I like when senators think outside the box,” said State Sen. Suzanne Geist of Lincoln. “And this certainly is outside-the-box thinking, and I’m very intrigued by it.”

A number of senators argued Nebraska’s tax woes could be solved if the state eliminated the millions of dollars in exemptions currently on the books.

“We have a lot of special-interests that will stop us,” State Sen. Mike Flood of Norfolk said. “Death by 1,000 cuts.”

State Sen. Tom Brewer of Gordon went a step further.

“There is a cabal of individuals — a cabal of ‘no’ — that will continue to say ‘no, don’t change anything. Continue to do what we’re doing,’” Brewer said.

One exemption in the consumption tax included business-to-business transactions, which led to these questions about farmers and ranchers:

“They would pay no property taxes, no income taxes. Not when they buy a tractor of a pickup, or seed corn; that would be considered business-to-business — until they get groceries or buy a pair of Levi’s,” said State Sen. Steve Lathrop of Omaha.

Charles Herbster, who recently announced his candidacy for Nebraska governor, has been promoting a consumption tax, so Wednesday’s vote would have advanced it doesn’t necessarily spell doom for the idea.

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