$108 Million
Minnesota governor Tim Walz proposed a budget that decreases the state’s overall sales tax rate from 6.875% to 6.8%, an effort to support citizens who have been feeling the effects of increased prices on everyday goods. To pay for the cut, and in fact to increase state revenues a projected $108 million annually, Governor Walz proposes a repeal of exemptions on a variety of services, including accounting, legal, stock brokerage, and investment services. Broadening the state’s sales tax base to lower the overall rate reflects an ongoing commitment in the state to a more progressive tax system.
Nebraska’s legislature has a similar option to consider in LB 169, introduced by Senators Tom Brandt and Myron Dorn, which would eliminate several sales tax exemptions that currently exist on services ranging from golf lessons to hair removal. A comparable proposal was considered during last summer’s special session as a means to achieve sustainable property tax relief by shifting more of the cost of K-12 education to the state. However, LB 169 does not direct the additional revenue raised by the new sales taxes to any particular source. Should the body decide to use the additional funds to lower the overall sales tax rate, it would help correct Nebraska’s already regressive tax system. However, if funds are diverted for property tax relief or appropriated to other state programs, they could potentially make Nebraska’s tax system even more regressive.
22%
Another familiar proposal introduced this year in the Nebraska Legislature is LB 331 and an accompanying pair of Constitutional amendments, LR 10CA and LR 11CA, which would effectively eliminate all types of taxation in the state save for what is called a “consumption tax”, or a sales tax on new goods and services. The bill sets the rate at 7.5% and eliminates most current sales tax exemptions in place, which proponents claim will generate sufficient revenue to fund the operations of the state.
Two reports, by OpenSky and the Tax Foundation, compiled for previous iterations of nearly-identical legislation showed that the rate prescribed in the bill would be woefully insufficient to meet the basic needs of the state. Considering many goods and services cannot be taxed under federal law, including Internet access and airfare, as well as the grocery exemption mandated by the bill, these items were removed from projected revenue. OpenSky’s analysis showed that the 7.5% rate set in the bill would result in $4.1 billion in revenue, which would have left a $7.4 billion gap from 2023 revenues, when the analysis was completed. The analysis proposed that even to achieve a revenue neutral rate, the consumption tax rate would need to be 22.1%, a rate difficult for low and middle-income households to remit on everyday goods and services. The Tax Foundation analysis was similar, projecting a 21.6% rate necessary to fund basic services.
$96.7 billion
As immigration takes the spotlight on a federal level, an analysis of the tax and revenue impacts of undocumented immigrants becomes an important policy consideration. A study by the Institute on Taxation and Economic Policy calculated that nationwide, undocumented immigrants paid $96.7 billion in federal, state and local taxes in 2022, the most recent year data was available. More than a third of those funds are generated by payroll taxes that fund programs undocumented workers may not access, such as $25.7 billion in Social Security taxes, $6.4 billion in Medicare taxes, and $1.8 billion in unemployment insurance taxes. Further, immigrants are often prohibited from the receipt of tax credits they would otherwise be entitled to.
In Nebraska, undocumented workers contributed an estimated $113 million in state and local taxes. For a reference, that would be about enough to finance the state’s FY25 General Fund appropriation for aid to the state’s community college system.
