The consumption tax sought by proponents of LR 264CA and its companion bill, LB 133, would need a rate of at least 20% to be revenue neutral, analysis from the Institute on Taxation and Economic Policy shows.
That means Nebraskans would essentially have to pay a sales tax of at least 20% tax on all purchases of new goods and services to prevent large revenue shortfalls and cuts to vital state and local services.
A regressive tax shift
The consumption tax proposed in LR 264CA would be a highly-regressive tax change as Nebraska’s lowest-paid families already pay a greater share of their income in sales taxes than those paid more under our current tax structure, largely due to the sales tax. Raising that to 20% and making it our sole revenue source would compound that significantly. The companion bill, LB 133, proposes a “consumption tax monthly allowance” to protect those at the bottom of the income spectrum but that would then shift the weight of the tax onto Nebraska’s middle-income families. Seniors and retirees across all incomes would also be hit hard by a consumption tax as they’ve paid income taxes throughout their lives only to be suddenly taxed a high rate on their consumption, including nursing home care, doctor’s visits and prescription medications.
Undermining local control
Both LR 264CA and LB 133 would undermine local control by depriving schools and local governments of their only sources of revenue. Under LB 133, political subdivisions would have to submit annual budget requests to the Governor and the Appropriations Committee, but leaving it up to state leaders to decide how such requests would be approved. If the state doesn’t meet their revenue needs, these entities would be able to apply to the Legislature to enact their own consumption tax, but that, too, would require approval at the state level. It would also mean residents would be subject to an even higher consumption tax.
Today’s Revenue Committee hearing starts at 1:30 p.m. and will be streamed live by Nebraska Public Media.