Gov. Dave Heineman today proposed eliminating the state income tax.
Heineman, in his State of the State address, called for the elimination of the individual income tax and the corporate income tax. To offset the loss of state revenue, Heineman proposed eliminating sales tax exemptions which have been granted over the years.
The individual income tax generates the most state revenue, by far, a total of just over $2 billion annually. The corporate income tax totals $270 million, bringing the total state revenue generated from income taxes to $2.365 billion.
The governor argued that his proposal could be neutral to state revenue by eliminating approximately half the sales tax exemptions Nebraska grants. The governor’s office reports that the state exempts a total of $5 billion annually in sales taxes.
Heineman said the elimination of the income tax would improve Nebraska’s ranking in the Tax Foundation’s State Business Tax Climate Index, making Nebraska more attractive to businesses and individuals. The state currently ranks 31st. Heineman hopes to catapult the state into the Top 10.
The proposal this year is even more ambitious than the $326 million income tax cut proposal Heineman made last year in his State of the State address. A legislature still worried about state revenue during the lingering economic doldrums trimmed the package to $97 million.
The revenue picture has brightened considerably, which is reflected in the budget Heineman proposed during the address to the Unicameral at the Capitol in Lincoln.
The budget projects state revenue will grow nearly 5% each of the next two years.
Heineman earlier unveiled an agreement with state colleges to freeze tuition for the next two years in exchange for increased state funding. The governor proposes an increase from $498 million to the University of Nebraska system to $541 million. Funding for the Nebraska State College System would increase from $45.5 million to $49.6 million under the governor’s proposal. In addition, the governor proposes state aid to community colleges rise by $10.7 million even though no agreement has been reached with the two-year schools.
State aid to schools would increase 5% annually under the governor’s budget; with Fiscal Year 2014 increasing state aid to public schools to $895 million and up to $939 million in Fiscal Year 2015. Aid to special education would increase by 5% each year as well.
The state Medicaid budget would total $248.3 million on the governor’s budget, which includes a 2.25% annual increase in reimbursement to doctors and hospitals that accept Medicaid patients. The budget anticipates spending slightly more than $72 million to implement the federal healthcare law.
AUDIO: Gov. Dave Heineman delivers the State of the State address. [18:35]