Governor's bid to end Nebraska income tax runs into opposition ...

By Deena Winter | Nebraska Watchdog

LINCOLN ? Farmers, college students, hospital heads, pharmacists, church leaders, manufacturers and business people all lined up and waited for hours to testify against a bill that would eliminate Nebraska?s income tax but pay for it by ending more than two dozen sales tax exemptions.

Opposition to Nebraska Gov.?Dave Heineman?s proposal is growing, as the state chamber of commerce and several business groups came out against it, saying it would increase their costs and possibly cause businesses to move out of state. Lawmakers? fiscal office estimates the legislation would result in $340 million in lost revenue by 2016. And now Nebraska?s king of the filibuster, Omaha Sen. Ernie Chambers, has threatened to talk the bill to death if it gets out of committee.

A rally organized by Americans for Prosperity to support the bill attracted about two dozen people at noon Wednesday, while a long line of people filled the hearing room and an overflow room to testify on the bill. Five hours into the committee hearing on the bill, opponents got their first chance to speak. As of 8:30 p.m., only a handful of supporters had testified.

The bill, LB405, would end Nebraska?s corporate and individual income taxes and replace the $2.4 billion in lost revenue by repealing 27 state sales tax exemptions. The state of Nebraska currently exempts $5 billion worth of goods and services ranging from prescriptions to newspapers to ag equipment.

TAXES: Nebraska Gov. Dave Heineman testifies before the Revenue Committee in Lincoln, Neb., Wednesday. (AP Photo/Nati Harnik)

About nine hours into the hearing on the bill, executives from companies such as Yahoo, Omaha Steaks, Nucor Steel, First Data and Lincoln Industries testified against the bill, with some saying they were putting expansion plans on hold and others threatening to move jobs if the bill passes.

The governor repeated his belief that ending the income tax would help bring in more businesses and create jobs to keep Nebraska?s young people. But it may be a struggle just to get the bill out of committee, where several senators were clearly skeptical of the bill.

Omaha Sen. Burke Harr was critical of the Heineman administration for not bringing enough people into his deliberations before unveiling the proposal and implied the bill was ?a peacock bill? that the governor knew wouldn?t pass.

?Nobody saw this or knew what was in this bill until three weeks ago maybe,? he said. He suggested a commission study the tax system, with public meetings around the state.

Columbus Sen. Paul Schumacher questioned how many young people check the Tax Foundation?s rankings or income tax rates when deciding where to live. But Omaha Sen. Brad Ashford, the most senior member of the Legislature and a cosponsor of the bill, said the state?s income tax is too high and too many goods and services are exempt.

?When you?ve got $5 billion in exemptions, that?s out of whack,? Ashford said. ?That?s why property taxes and income taxes are too high.?

However, he also acknowledged the bill would help keep ?high-end taxpayers? in Nebraska. OpenSky?Policy Institute, a Lincoln think tank, has estimated the lower 80 percent of Nebraska wage earners? taxes would go up while those for the upper 20 percent would go down if the legislation is enacted. Ashford said he didn?t believe that was true and that Nebraska needs to ?juice up? its economy as the rural areas lose population.

Cedar Rapids Sen. Kate Sullivan said the farmers and rural hospitals in her district are concerned about the impact of the bill ? which would end sales tax exemptions for ag equipment and medical equipment. Heineman said it wasn?t his intent to target the ag industry, and he?s open to other ideas about which exemptions to end.

Schumacher pressed Tax Commissioner Doug Ewald to admit that people making more than $100,000 a year will be the biggest beneficiaries of the bill unless they work in one of the industries that will no longer get exemptions.

Joseph Henchman, vice president of the Tax Foundation (which ranks Nebraska?s business tax climate 31^st in the nation), said corporate income taxes are most harmful to economic growth.

?Taxes definitely do affect behavior,? he said. ?That?s why a lot of New Yorkers live in Florida.?

And while many factors affect where people live and businesses locate, the tax climate is one thing lawmakers can affect, Henchman said.

And while he commended the governor?s goal of a simpler tax system, he said, ?It?s not what I would?ve come up with? since taxing business transactions is double taxation. He said the sales tax exemption on services by lawyers, accountants and real estate agents are a holdover from a services-based economy.

Renee Fry, executive director of OpenSky, told lawmakers the bill will shift the state?s tax burden to the middle class, won?t draw people to Nebraska and won?t create jobs. She said scholarly evidence shows people move primarily for new jobs, lower-cost housing, a better climate or to be near family.

?Relative tax levels are at most a very insignificant part of most people?s decision,? she said.

John Cederberg, an accountant and proponent of economic development incentives speaking on behalf of the state chamber, said one business would see its tax liability go up 450 percent under the governor?s plan.

Nick Niemann, an Omaha attorney who was the principal architect of Nebraska?s economic development incentives in 1986, said while income taxes are important to companies, he?s concerned about provisions that reduce the state?s investment credit from 10 to 5 percent and begin taxing business inputs. He testified in a neutral position.

Dirk Petersen, general manager of Nucor Steel mill in Norfolk says $130 milion in expansions are on hold because of the tax overhaul, which he says would cost his company about $30 million, largely in increased energy costs.

?I?m just telling you straight out: If this goes through I?m going to tell corporate to spend the money somewhere else,? Petersen said. ?And we have options. We have 60 facilities in the country. It?s not a threat. It?s the way it is.?

Chuck Whitney, facilities manager for the Yahoo data center in La Vista, said the bill would cause the company to pause and reconsider future expansions because it repeals exemptions that were recently enacted.

Andy Hunzeker, chief financial officer of?Lincoln Industries, said if the bill passed the company would move 200 jobs to other states, or one-third of its workforce.

A public hearing on an alternative, slimmed-down Heineman income tax proposal will be held at 1:30 p.m. Thursday. That bill ends the state corporate income tax and exempts the first $12,000 of retirement income for married couples and $6,000 for single individuals. To pay for the tax cuts, $395 million in sales tax exemptions would end.

Contact Deena Winter at deena@nebraskawatchdog.org.

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Source: http://watchdog.org/68397/governors-bid-to-end-nebraskaincome-tax-runs-into-opposition/

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