Epic Option 2.0 and other taxes

Senator Mike Jacobson

I have read several articles touting the new attempt to revive the EPIC tax proposal, which failed to secure the necessary signatures to get on the 2024 ballot. The new proposal is billed as EPIC Option 2.0. This time, the proposition is very simple: prohibit any government entity from imposing a property tax, income tax, or inheritance tax. This certainly limits the options to pay for necessary public services. The proposed constitutional amendment does not give any other direction except that the Legislature shall determine how revenues are distributed. The only real remaining substantial source of tax revenue would revert to sales taxes. 

Today, on a statewide basis, Nebraska raises $5.3 billion in property taxes (levied and collected locally), $2.459 billion in individual income taxes, and $1.725 billion in corporate income taxes, plus an unknown amount collected by counties from the inheritance tax. So, the sales tax portion of our tax collections would likely need to grow by over $7 billion to replace property and income taxes. This does not include “local option sales taxes” that some cities charge today and could remain in place. 

The purpose of my article this week is to share with you my personal observations about the proposal and why you should think carefully about it before agreeing to sign.

The supporters suggest that this was the same approach that was taken back in 1966 when the voters chose to eliminate the state’s ability to charge a statewide property tax via constitutional amendment. It is important to note, however, that the state portion of property taxes at the time was $16 million, not the current $5.3 billion collected by all taxing authorities today. This compares to the state collecting $2.479 billion in net individual income tax., $1.725 billion in corporate income taxes, $2.459 billion in net sales taxes in 2024. 

As you can see, it would be a significant challenge to offset this much revenue without any guidance on the unintended consequences that likely would come with this kind of change. Our sales tax rates would certainly need to be increased, even if the base is significantly expanded through taxing more services and removing exemptions. How much the sales tax rate would need to be increased is still unclear. And how high can we realistically raise our sales taxes without risking significant border bleed? What are the impacts on low-income individuals merely buying food and essentials?

Further, the new version of the constitutional amendment would now ban all political subdivisions from charging a property tax. Today, as we previously discussed, cities and counties rely partially on property taxes to support operations, but public schools rely heavily on property taxes and state aid for their support. There are also a number of smaller political subdivisions, such as natural resource districts, ag societies, airport authorities, fire districts, and others, that also levy property taxes. This amendment would mean a significant shift in the state’s funding support for public schools and other political subdivisions.

In the end, raising the revenue is a significant issue, but it is also critical to consider the distribution model. If all major tax revenues flow to the state, how do we fairly distribute funds to the political subdivisions? I have never heard anyone say that they love the TEEOSA formula for school funding, but that is exactly where we would be heading. 

The Legislature is responsible for all spending bills, so would it also be responsible for setting the budgets for all political subdivisions? That would be a nearly impossible task without using a formula. How does rural Nebraska fare under such a formula, particularly given that the majority of the Senators represent urban areas? 

Should the Legislature decide how much cities should spend on street improvements, economic development incentives, recreational facilities, and other local projects if you cannot pay for it with local sales tax revenue? What roads need to be graveled, rebuilt, or paved in the county? When do local governments make and pay for those projects? The prospect of a centralized revenue distribution is certainly daunting.

I don’t understand the obsession with placing the total tax burden on one single tax. I believe that tax collections should align as closely as possible with the user of the service. Service that benefits the entire state’s missions should be supported by a statewide tax, and local needs should be funded locally. I also do not believe that essential goods and services, such as food and healthcare, should be taxed. And I believe business inputs should be exempt from sales taxes. 

I know I’m not the only one who has opinions on Epic Option 2.0, and I look forward to hearing from you. It is a privilege to serve as your State Senator, and I will continue to give my full effort to make a positive difference for the District and the State. You can reach me at mjacobson@leg.ne.gov or 402-471-2729.