Definition of Regressive- taking a proportionally greater amount from those on lower incomes.
I know some of you might be thinking it, but I promise I’m not delusional about this issue. I am fully aware that we don’t have a lot of options in terms of raising revenue to fund government and thus few options to rebalance the scale. Little has changed since 1776, we can tax earnings (income taxes), consumption (sales taxes) or assets (property taxes). That’s pretty much it. Also fair to say I think there is consensus that the proverbial three-legged stool represented by those three taxes, is out of balance in Nebraska and that the latter two taxes are considered “regressive”.
But to simply lump sales taxes and property taxes in the same category of “regressive” fails to recognize the massive inherent inequity between them. Recognizing (or exposing) this inequity seems to be something no one is anxious to talk about. More on that later.
So staying with sales taxes, how are households REALLY impacted by sales taxes? Groceries are exempt from sales tax, as is gasoline in your vehicle (yes, there is a state motor fuels tax, but not a sales tax). So at least two foundational elements of running a household have no sales tax, meaning sales taxes shouldn’t be affecting a family’s ability to feed their kids or get to work or get your kids to school.
But you say, there are other costs in a household, like home energy bills, clothing, cable bills or cell phones which ARE subject to sales tax. Except for defining necessity (energy bills and clothing) vs. luxury (cable tv and cell phones) there’s not much to argue about here.
That being said, drive through nearly any parking lot in this city. You’ll see Mercedes G Wagons (as the kids call them), BMW’s, Hummers and Jeep Grand Waggoneers, all which retail for well over $100,000. It doesn’t take a rocket scientist or a Stanford MBA to understand the sales tax revenue generated by these purchases dwarf the sales tax revenue from LES bills, or Verizon, T-Mobile or Spectrum cell phones. To say nothing of sales taxes generated from high-end building materials in new homes, high end suits for $1,500, golf clubs for $2,000, a $4,000 Traeger grill from Home Depot, $5,000 for new rims and tires for a GMC Sierra pickup (yes, I priced them for my own truck).
An article published by the Nebraska Examiner in 2024 stated that since 1967, when the first statewide sales taxes were implemented over 100 exemptions have been codified into law. If we are honest with ourselves, it isn’t that these exemptions particularly made sense. They were created because one group or another had a stronger lobbying influence than another to get exemptions granted.
This has resulted in $6.5 billion left uncollected from these exemptions vs. only $2 Billion annually collected. Translation Nebraska is collecting only about 24% of the potential sales tax revenue, if all exemptions were eliminated.
Is it logical that the cost of the oil and filter when you stop at Valvoline are subject to sales tax, but paying an attorney to set up a trust or prepare a will is not? Contemplate that for a moment, the sales tax exemptions benefit groups with stronger lobbying power, not necessarily those in most need of the exemptions.
I’m not anti-attorney, or anti-accountant, I was a licensed CPA for 25+ years. But I would welcome anyone to argue that someone who can afford legal fees of $5,000 to have a trust set up, or someone whose income taxes are so complex they need a $300 per hour CPA can’t afford 7% sales tax on those services. Or a company with over $5 million in equity that is required to have an audit that costs $100,000 couldn’t afford the 7% sales tax. Seriously, please someone explain that to me.
But what’s insane in all of this is our tax rate wouldn’t have to be 7%. If we simply did what I consider to be the right thing and eliminate these special interest sales tax exemptions, the sales tax rate could be cut in half or more. And doesn’t that benefit EVERYONE?
Also note I didn’t say eliminate ALL exemptions. Nothing should ever be subject to sales tax twice (aka a tax upon a tax) commonly referred to as business inputs (something bundled with other products and sold as a single unit, subject to sales tax at the time of sale). Those business inputs should always be exempt (think farmers, manufacturers, etc..)
While reducing the overall rate wouldn’t affect the proportional impact of sales tax on lower vs. higher income households, it would favorably impact everyone. Again – EVERYONE.
Enough about sales tax, let’s talk about the most regressive tax possible, property taxes. The premise of regressive presumably ties directly to “household income”. The insidious nature of property taxes is the aspect of unrealized gains. With increasing valuations, every year, homeowners are asked to pay more in taxes without so much as a single dollar increase in economic benefit (wages, income, etc..).
As nasty and unpleasant as the IRS is, even they don’t tax unrealized gains. Though there have been proposals at the Federal level to tax unrealized gains in an investment portfolio, those proposals have largely been dead on arrival. So why do we tolerate, advocate and refuse to move away from a system that taxes unrealized gains in real estate and eschew a less regressive tax (a lesser evil) by eliminating sales tax exemptions and reducing the overall sales tax rate that everyone pays?