Nebraska governor unveils tax reform proposals

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Farm Forum

LINCOLN, Neb. (AP) – Farmers, manufacturers and shipping companies could lose millions of dollars’ worth of sales tax breaks under plans announced on Jan. 18 by Gov. Dave Heineman, but their income tax burden would also vanish.

The Republican governor unveiled two possible tax-reform packages, both of which would eliminate corporate income taxes and make up the lost revenue by ending the state sales-tax exemptions.

But the two measures differ in both their scope and who would benefit. Heineman said he submitted both to initiate a public discussion with lawmakers, business leaders and Nebraskans, while keeping his own plans fluid. The governor has said he would not support ending the tax exemption on food.

“Our sales tax system shouldn’t favor one industry over another,” Heineman said. “It’s been nearly five decades since Nebraska has had a serious debate about our overall tax system. As I’ve said, life has changed drastically since the 1960s.”

The last major overhaul of Nebraska’s tax code was in 1967, when a constitutional amendment banned the state from using property tax revenues. The loss forced the state to enact both sales and income taxes.

The bills Heineman proposed are sponsored by state Sens. Beau McCoy and Brad Ashford, both of Omaha.

One measure would eliminate the state’s individual income tax as well, but require lawmakers to cut $2.4 billion in sales tax breaks to offset the lost state revenue. The second, smaller plan would eliminate $395 million in sales tax exemptions, but only retirees would see their income taxes reduced. The proposal would exempt the first $12,000 of retirement income for married couples and the first $6,000 for single filers.

Heineman said he supports the more ambitious plan to eliminate the state’s income taxes, but is willing to work with lawmakers.

Even so, his plan is expected to face resistance from lawmakers who argue that it will shift the tax burden onto Nebraskans who are struggling to pay for other needs.

State Sen. Jeremy Nordquist of Omaha said the plan would increase the tax burden on Nebraska residents who take prescription medications and use the state’s hospitals, and small businesses that need the tax breaks to launch. Under the governor’s larger tax plan, college students would also pay more to live in dorms.

“I agree that this subject deserves a serious debate, but I cannot support a proposal that increases the burden on hard-working Nebraskans who most need the tax relief,” Nordquist said.

Lawmakers have also introduced bills that might compete with Heineman’s proposal. On Jan. 18, state Sen. Steve Lathrop of Omaha introduced a bill that would help Nebraska cities and counties lower their property taxes.

Lathrop’s measure would create a state fund that would distribute money to local governments, based on their populations, as long as they agreed to use the revenue to lower property taxes.

“When the Legislature debates tax policy this legislative session, we need to include property tax relief as part of the discussion,” Lathrop said.

Heineman’s proposals would eliminate sales tax exemptions for containers used in shipping, and molds and dies used in manufacturing. Medical equipment used by hospitals would become subject to sales taxes.

The proposals would also end millions of dollars’ worth of sales tax breaks enjoyed by the state’s powerful farm interests: agricultural chemicals, energy used by farms, and seeds bought by commercial growers.

In many cases, though, sales tax exemptions targeted in one bill are preserved in the other. Eliminating all income taxes would require the state to cut the tax breaks for bull semen, hospital beds, dorm-room rentals and data centers.