September 21, 2014

State lawmakers wary about income tax elimination proposal (AUDIO)

Gov. Dave Heineman

Gov. Dave Heineman

Gov. Dave Heineman has delivered a challenge to the legislature: eliminate the state income tax.

It appears lawmakers are cautious about embracing the plan.

Heineman cast his proposal as a chance for Nebraska to forge its future.

“Are we willing to be bold and courageous and change our tax system so we can keep our sons and daughters here?”

It is the question on which Heineman wants to hinge the discussion.

During the State of the State address to the legislature, Heineman suggested that while the state economy has improved, it does not generate enough business activity to retain its youth.

How many of you have sons and daughters, grandchildren, brothers and sister and other family members who no longer live in Nebraska because they couldn’t find a job here or they couldn’t find the right career here in Nebraska?

Heineman blamed the state’s Business Tax Climate ranking listed by the Tax Foundation. The foundation ranks Nebraska 31st out of the 50 states. He called that mediocre at best.

But, simply eliminating the individual and corporate income tax, according to Legislative Speaker Greg Adams of York, would leave too big a hole in state revenue.

“So, then you come over to the sales tax exemption side and look for things to plug and, there will be war, because every one of those sales tax exemptions has a constituency,” Adams told reporters after the address.

The state individual and corporate income tax generates $2.365 billion annually; just over $2 billion from individual income taxes and $270 million from corporations.

Sales tax exemptions granted over the years by the Unicameral now total $5 billion a year.

Adams noted that most sales tax exemptions don’t amount to much and likely could be eliminated without a lot of controversy. Others would be more problematic and Adams pointed out that to get to a one-to-one offset, the legislature would have to tackle major sales tax exemptions which would be much more controversial.

Both Adams and Revenue Committee Chairman, Sen. Galen Hadley of Kearney, said they want to see more detail before committing to the plan. Which sales tax exemptions end up on the bargaining table make all the difference in the legislature’s consideration of the proposal.

Hadley said he wants to hear what effect it will have.

“What this doesn’t do is look at property tax which is the one thing that I hear an awful lot about,” Hadley replied.

The conversation has just begun.

AUDIO: Brent Martin reports [:50]