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Kozi Checks & Balances TaxTactics News

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December 16.2025

2 Minutes Read

Can Excise Taxes Truly Replace Property Taxes? An In-Depth Analysis

Excise Taxes Cannot Replace Property Taxes

Why Excise Taxes Cannot Fill the Gap Left by Property Tax Declines

In the landscape of burgeoning local tax debates set for 2026, one truth remains steadfast: excise taxes cannot feasibly replace property taxes. As housing prices in the U.S. have surged, the impact on local governments’ revenue streams from property taxes has become more significant, particularly in states like Nebraska, where proposed tax reforms are riding on the need to address skyrocketing property values.

From January 2020 to July 2025, average home prices rose by a striking 55.9%, which outpaced wages and inflation—an alarming trend that homeowners dread as they anticipate rising property taxes. It’s crucial to recognize that property taxes are the backbone of local governmental revenue, representing around 70% of all local tax collections and exceeding income tax revenues by a large margin.

The Inadequacy of Excise Taxes

Faced with potential shortfalls, states are considering increasing excise taxes—levies on specific goods like tobacco, gasoline, and alcohol—as alternatives to property taxes. However, the data shows an inherent problem: excise taxes have a narrow base and are traditionally volatile, fluctuating with market cycles and consumer preferences. For instance, Nebraska's cigarette tax managed only $52 million in revenue last year, a far cry from the $5.3 billion raised through property taxes.

This gap highlights that the alternative revenues from excise taxes cannot bridge the substantial funding requirements needed for essential local services such as education and public safety. With the steady decline in excise tax receipts, especially related to shrinking tobacco use, the viability of this approach is highly questionable. As reported, real cigarette revenues in Nebraska dropped two-thirds since their peak 50 years ago.

Community Services at Risk

Municipalities depend on these essential services to function. As property taxes provide critical funding for schools, police, and fire departments, any attempts to replace such a crucial revenue source with excise taxes represent a shortsighted solution likely to endanger community services. Homeowners may welcome lower property taxes, but they must understand the consequences of such drastic tax replacement strategies.

The overall lesson is clear: for local governments to maintain stability and have adequate funding for vital services, property taxes should not only remain but be treated with the importance they merit during these debates. The conversation must shift toward efficiently managing property taxes rather than replacing them with less stable revenue generators.

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Can Excise Taxes Truly Replace Property Taxes? An In-Depth Analysis

Why Excise Taxes Cannot Fill the Gap Left by Property Tax Declines

The Inadequacy of Excise Taxes

Community Services at Risk

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