Hidden taxes: User fees siphon money from Nebraskans’ pocketbooks

Many, too many, Nebraska households and small businesses, including farmers and ranchers, are struggling with affordability. Conservatively, one in two Nebraska households, or over 1 million Nebraskans, are economically insecure, meaning every month they are struggling to meet just their basic needs like housing, food and gasoline. While the other half of Nebraskans are managing better, affordability in the home, business and on the farm is real. This affordability challenge is being made worse by hidden taxes reducing our spending power. 

We are familiar with obvious taxes like income, property and sales taxes. These taxes reduce our incomes and in turn reduce our ability to spend, invest, and make choices. For many, if not most of us, we understand these taxes are important, funding national defense, schools, safe roads, police and higher education.

Let’s stretch our minds a bit and define what I mean by “hidden taxes.” Beyond the obvious taxes, there are numerous government policies — federal, state and local — that reduce the disposable incomes of households, businesses and farmers. These policies are taking up a bigger bite of our income than we might expect, and they are not as obvious as when we pay our income taxes April 15 each year. 

Elected officials from the Congress to our governor to local mayors are sensitive to the cost of property, sales and income taxes. Over the decades there has been a movement to control obvious taxes, minimizing political blowback. However, a striking array of user fees exists to fund government services and programs that are less obvious, including everything from getting a driver’s license to buying a house to starting a business.  

Let me illustrate just how extensively government user fees are impacting Nebraskans. According to the Legislature’s Fiscal Office and its Directory of State Agency Programs and Funds, there are more than 300 government cash funds associated with 75 state agencies. These cash funds are supported by legislatively authorized user fees. These are just state user fees, of course; there are federal and local government user fees expanding this list significantly. 

Fiscal year 2024-25 documents show that Nebraska took in over $627 million, or over a half-billion dollars, in various user fees. This is real money with real impact on our pocketbooks.

On the surface, user fees are reasonable where beneficiaries of services are directly paying the cost for those services. The policy is if you need a certified birth certificate, the agency responsible calculates the cost of providing this service and sets fees to cover those costs. We can reasonably argue that those of us not needing a birth certificate should not be responsible for paying for those who do. 

Unfortunately, Gov. Jim Pillen and a majority of the members of the Legislature are engaging in games with user fees. First, they are pushing more of the cost of state government to user fees to moderate income and sales taxes. Second, they are not managing the cost of services, with the rate of fees often generating surplus balances or more fee income than is needed to cover actual costs of service. Third, they are now sweeping cash fund balances to fund unsustainable income and property tax relief. 

Drilling down, providing property and income tax relief is great politics. Who does not want such relief? However, balancing the state’s budget as required by our constitution by overcharging user fees and using surplus cash funds to cover tax relief is neither sound tax policy nor sustainable. Good tax policy would work to set user fees more precisely, generating sufficient income to cover actual service costs but no more. 

During the past legislative session (2024-2026), over $160 million of user fees (cash funds) were redirected from their intended purpose to fund income and property tax relief. Now we are taxing those using specific services to provide benefits to all Nebraskans. Reverse and perverse logic. 

Rooted in America’s Revolutionary War, the debate over the role of government and taxations is core to our 250 years of history. This debate will continue, but we must embrace a public discussion on the role of government and how we will pay for the government, and ensure our tax system is transparent and fair.