Getting Consumption Tax Wrong

Remembering Rich Pahls

 So Bryan Sloane, a known tax expert, had a chance to speak to yet another group in Omaha and took pot-shots at the EPIC consumption tax proposal. I heard back from a few people on this.

He apparently takes issue with the math and other parts as many critics do. However, Mr. Sloane is a nice guy and I do not want to beat him up over a disagreement. He merely walked into similar arguments once made by the Platte Institute which they later retracted.

When the idea of a consumption tax is raised, some become more skeptical the more they hear about it. The assumption is the idea is too idealistic or cannot possibly work or worse, is a scam. In actuality, the idea in Nebraska grew the more people began to understand how idiotic, unjust, and archaic the current tax systems are. This has resulted in the EPIC Option organization doing a study on the tax systems and how a consumption tax would work (https://epicoption.org/beacon-hill-study). Sloane simply has not read the study and is unable to refute it.

Years ago, I was with a bunch of Libertarians, fair-taxers, flat-taxers, investors, tax preparers, and Say’s Law advocates. I learned more about economics than intended. People were talking about a national Fair Tax idea and I dismissed it because it would never fly but it might work at the state level yet no serious effort in any state had taken place. If you want an economy to grow and people to prosper, you need to make the tax burden low. This is not just about the taxes themselves but the ease of paying such taxes.

In enter Senator Rich Pahls (https://nebraskaexaminer.com/2022/04/27/nebraska-state-sen-rich-pahls-ardent-opponent-of-tax-exemptions-has-died/). I was in the group of people telling Pahls about exemptions in the taxes being a problem. Nebraska’s sales tax of 5.5 percent is actually way too high but this is the result of substantial exemptions to the sales taxes and those exemptions go way beyond groceries. Remove just half of the exemptions and the income tax could actually be abolished. He researched it, and demanded change.

How did we get to this point? Nebraska adopted the sales tax and income tax as a way to reduce property taxes back in the 1960s. It backfired. What started as a reasonable sales tax steadily increased as more exemptions were added over decades. At the same time, the income brackets of the income tax system seldom if ever changed. The vast majority of people pay at least part of their taxes at the highest bracket.

As for the property taxes, there are many exemptions.  Also, there are many arguments over evaluations. The Stothert Administration keeps putting on this bogus, lying graph suggesting the property taxes have not gone up but it ignores the fact property evaluations have dramatically increased over the years, pushing property taxes upwards by over 50 percent. Property taxes are so high now, it is as if Mayor Al Veys and Hal Daub never existed in reducing property taxes. The levy flat-lines because the property evaluations rocketed upwards. Stothert also is very stubborn in reducing the growth of government spending, but I digress.

There are other aspects to this where people such as Sloane have lost touch with how far the economy has changed. Nebraska has a large service economy which has become digitized. The Pandemic put the digital economy on steroids. Uber is used by every age group as is something like DoorDash. Yes, Governor Ricketts did keep government growth in check, but the revenues from the sales tax grew in spite of it all. If you want a sense of Nebraska’s economy, see this from the State at the link below:

https://nebottomline.nebraska.gov/economic-strength/

Also, I want to caution critics. Be careful you are not making perfection the enemy of the good. I have a few concerns about the consumption tax as well. Right now, Nebraska's tax systems are excessively bad, but people tolerate it because of the cynical thought “Better to be with the Devil you know, instead of the Devil you don’t know”. Yet, Nebraska taxes are extremely archaic, unjust, and unfitting for a digital economy and hold Nebraska back economically.

To the critics, if you do not like the consumption tax proposal, please come up with a better proposal. I dare you! Merely providing a thumbs up or thumbs down on a proposal is pure laziness and I will not tolerate it, nor should anyone else. As said in many math classes, even if your answer is correct, you still have to show your work. Mere criticism will not suffice. Realistically, the advantage of consumption taxes is people only pay when they have the means to do so. This makes it just, fair, and equitable and will vastly grow Nebrasaka’s economy.

Some say Nebraska does not have enough attractions to garner funds through a consumption tax, but there are enough to fund Nebra

The problem of houses and cars in regards to being new or not, will at the very least, cause some disruption with a consumption tax. I have debated this matter with the EPIC tax proponents as well as opponents. New houses pay a one-time consumption tax, but for years, they will have a home free of major repairs. A person buying a used/pre-owned house would pay no tax, but since the home is not new, they are likely to have to do many repairs. With a consumption tax, they will pay a tax on goods and services for repairing the home. To some, this is merely a tax shift but they are incorrect as the taxpayer is paying on their ability to pay, a low tax burden.

The same can be said about used cars. There will probably be a glut of used cars at first as they would be exempt from a consumption tax, but used cars are far more likely to be in need of maintenance compared to a new car, and such repairs would pay tax both on goods and services. This is why the consumption tax works.

Yes, people will do what they always try to do.: they will game the system. Yes, government will do what they always try to do: raise taxes by any means necessary. Yes, dandelions will come up in your yard even after putting down weed killer. Please tell me why you were expecting anything to be different from such actors with any proposal. Are you just going to stay in your bed all day because the dandelions grow?

Come up with every bad scenario the critics will, I won’t bite because the current tax situation is not acceptable. But what if this does not work? Please reflect on history. Things change. Perhaps there should be a 1 percent sales tax on used homes and cars, and perhaps food too! We live in a Republic, a government of the people, by the people, and for the people. Ultimately, we can change the laws. The critics cannot, must not, should not, be allowed to portray the consumption tax as an end-of-the-world scenario, a suicidal proposal because it simply is not.  Change is not merely an option, it is inevitable. Better to master the change instead of cursing it.

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