LINCOLN — The chairman of a panel considering possible state tax changes said Friday that consensus is building for cutting taxes on Social Security benefits and reducing property taxes.
But State Sen. Galen Hadley of Kearney, chairman of the Legislature's Tax Modernization Committee, said the bigger challenge will be finding a way to finance such tax changes that is politically acceptable.
“If you ask how you're going to fund it, you get a tremendous amount of difference,” Hadley said.
He commented after the panel's fifth and final public hearing. The session, held at the State Capitol, was a marathon of complaints and suggestions lasting 5½ hours.
Many were gripes from farmers and retirees who say they pay much higher taxes than people in adjacent states.
Dunbar farmer Alvin Guenther said taxes on one of his properties had more than doubled from 2008 to 2012, forcing his wife back to work and erecting a barrier to young people entering farming.
Others called for raising taxes on candy, pop and tobacco to provide tax relief.
John Baylor of Lincoln brought a roll of toilet paper, a tube of toothpaste and a candy bar to illustrate his contention that including junk food and pop as tax-exempt groceries doesn't make sense, when the other items are subject to sales taxes.
“These are the essentials,” Baylor said, pointing to the tissue and toothpaste. “And this is the want,” he said, gesturing at the candy bar.
The tax committee took nearly 20 hours of testimony across the state this month. It will meet Nov. 1 to attempt to craft some proposals.
Hadley, chairman of the Legislature's Revenue Committee, said that the panel heard more problems than solutions and that tax reform is a politically complex and difficult endeavor.
For instance, he said, many people have suggested that Nebraska expand sales taxes to more services — such as hair cuts, auto repairs and funerals — in order to shift taxes from property.
Hadley and others pointed out that the last time Nebraska did that, in 2002, it brought howls of protests and forced the Legislature to rescind the sales tax on home remodeling.
But interviews with a few senators, including Hadley, indicated a desire to craft a package of tax changes for consideration in 2014.
Most said that would include some relief from property taxes, the No. 1 complaint heard at the hearings, though there were differing ideas on how to deliver that help.
Sen. Ken Schilz of Ogallala said the state needs to look at taking over the funding of some local services, thus removing the services from property tax rolls. He mentioned community colleges and county courts as possibilities.
Sen. Tom Hansen of North Platte said the simplest way to deliver property tax relief would be to use part of the state's record cash reserve fund — now standing at $679 million — to bolster the existing state property tax credit. That credit will deliver a break of about $99 next year to the owner of a home valued at $150,000.
But Hadley and Schilz said they would oppose using the cash reserve account for tax relief.
That money is traditionally held back as a “rainy day” fund when the economy goes south and has been used for one-time expenses, not the ongoing cost of a tax cut.
Hadley said the state needs to expand tax breaks for low-income recipients of Social Security.
Nebraska is one of only five states that mirror the federal tax on such income — the first $25,000 of income for an individual, and $32,000 for a couple, is exempt. But the rest is subject to tax. Those thresholds, he said, should be raised to provide breaks for more retirees.
Hadley said he would like to reduce state income taxes, but even small cuts would be costly and prompt political opposition.
Several groups, including the Nebraska State Education Association, gave testimony Friday that income tax cuts would benefit the rich primarily.
Sen. Pete Pirsch of Omaha, a candidate for state auditor, said the committee would have to draft a wide-ranging package of tax changes.
Lots of interest groups, he said, would need to see benefits to pass a tax bill during the short 60-day session in 2014.