Nebraska tax change “options” headed for public hearings
September 9th, 2013
Lincoln, NE– A group studying state taxes is about to hit the road to ask Nebraskans about possible changes. The governor says he thinks the groupâ€™s headed in the right direction. But every possible change also involves tradeoffs.
Last week, the Legislatureâ€™s Tax Modernization Committee met in the Capitol to discuss options. This week, Gov. Dave Heineman said heâ€™s optimistic.
â€œIâ€™m very encouraged by what I hear from them and then my own conversations with them, that weâ€™re headed towards a package of income and property tax relief. And that would be good news,â€ Heineman told NET News.
That might make it sound like the committee is planning to propose cutting taxes. But according to its chairman, Sen. Galen Hadley of Kearney, â€œThe charge of this committee is not to lower the overall revenues of Nebraska. Nor is it to increase the overall revenues of Nebraska. Itâ€™s to make sure that the system is equitable to the citizens of Nebraska.â€
Is the governorâ€™s goal — income and property tax relief — compatible with the chairmanâ€™s statement that it’s not his committeeâ€™s job to decrease revenues?
Heineman says they are compatible. Last January, he proposed abolishing income taxes and making up the lost revenue by applying the sales tax to currently exempt items, like inputs used in agriculture and manufacturing.
The Legislature killed that plan. But Heineman suggests the committee could consider a scaled-back version.
â€œI think most of us are in agreement: ag and manufacturing inputs are off the table. But having said that, youâ€™ve also got, for example, energy used by agriculture and manufacturing is exempt, only for those two industries but not for other industries. So I think thereâ€™s an item you ought to take a look
at,â€ Heineman said.
One company that could affect is Baldwin Filters, based in Kearney, where it manufactures filters for trucks and heavy equipment. Baldwin employs about 900 people in Kearney, and is about to start work on a $40 million expansion it says was based in part on the belief Nebraska would remain a manufacturing-friendly state.
Baldwin said its market is highly competitive, and the proposal to end the stateâ€™s manufacturing energy exemption would substantially increase its operating costs. That point is driven home as Dan Schulte, vice president for operations, shows a visitor around the plant, where giant machines powered by electricity are stamp, cut and shape steel and cellulose into filters.
Taxing energy for manufacturing isnâ€™t specifically on a list of options the Tax Modernization Committee is compiling for public hearings later this month. But reviewing sales tax exemptions in general is.
So is taxing certain consumer services. The list isnâ€™t spelled out, but previous bills have listed everything from car repairs to haircuts. Also on the list are proposals to cut income tax rates, or to limit property taxes to a certain percentage of income.
Hadley said there are trade-offs to all these options.
â€œIf we feel itâ€™s unequitable (sic) in one area because weâ€™re taxing too much, then we might have to look at other areas where we feel we might not be taxing as much as we should be,â€ Hadley said.
Trying to lower some taxes could raise others, even without legislative action. For example, Nebraska could lower the taxable value of agricultural land, to bring it closer to the level of taxation in neighboring states. But if local governments still try to collect the same amount overall, that could drive up taxes on everything from tractors to railroads, pipelines, homes, and businesses.
On income taxes, the committee is looking at options including cutting rates on individuals, businesses, and capital gains. Also on the list is reducing or eliminating taxes on Social Security income, which Hadley says would help many retirees.
However, Hadley says a proposal to exempt military retirement income is not on the list, because it begs the question of where to stop.
â€œIâ€™ve heard bills to exempt teacher’s retirement, state government employees retirement, federal government employees retirement, Social Security, military retirement, or all retirement. Thatâ€™s six different potential exemptions of retirement,â€ he said.
But Heineman said military retirement is still on his list.
â€œI think military retirement ought to be exempt from taxation. These are men and women who fought for our freedoms, put their life on the line. In my opinion, that oneâ€™s still very much a viable option. And again, I think itâ€™ll be considered ultimately in the mix, if not by this committee then by the Revenue Committee and ultimately the entire Legislature,â€ the governor said.
Hadley calls the Tax Modernization Committeeâ€™s list of options a â€œwork in progressâ€ â€“ just because somethingâ€™s on the list doesnâ€™t mean the committee thinks itâ€™s a good idea. And just because somethingâ€™s not on the list doesnâ€™t mean it should not be discussed.
â€œThese arenâ€™t all the options. But theyâ€™re some of the potential options. And if you have other options, tell us,â€ Hadley said.
Nebraskans will have their chance to do just that, in a series of public hearings that begins Sept. 23rd in Scottsbluff.
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