CHICAGO — Nebraska legislators are weighing major overhauls to the state’s tax code, including Gov. Dave Heineman’s controversial proposal to eliminate the state’s income tax.
After two days of marathon public hearings last week that drew heavy opposition to the Republican governor’s plan, lawmakers this week will decide on a compromise measure that would set up a working panel to review the state’s tax code and report back to the Legislature by April 1.
Heineman, who unveiled his income-tax proposal in January, reportedly said he would extend the 90-day legislative session until a bill is passed.
The governor’s plan, Legislative Bill 405, would eliminate individual and corporate income tax and replace the lost revenue by broadening the sales tax by eliminating 30 exemptions.
Sales and income tax together generate $4 billion annually for the state. Income taxes generate $2.4 billion of that.
At the same time, the state provides $5 billion in sales-tax exemptions, according to the governor’s office.
“Nebraska exempts more than we collect,” Heineman told lawmakers last week. “If we eliminated just half of the current exemptions, Nebraska wouldn’t need to have an individual or a corporate income tax.”
He said the state’s current tax code, crafted in 1967, is outdated for the current economy. “Today we are operating in a technology-driven, global free market economy, and we need a modern tax system,” Heineman said.
Nebraska’s personal income-tax rate is 6.84% for salaries over $27,000. Heineman said that’s the 35th highest among the states, and that Nebraska is one of only seven states that does not exempt some or all retirement income.
A range of trade groups representing the major Nebraska industries manufacturing, agriculture, health care, and large business testified against the measure, as most of them are now exempted from the sales tax.
An alternative bill, LB 406, would eliminate the corporate tax, reduce the personal income tax, and enact a smaller increase in the sales tax base.
Another alternative bill, LB 613, will get a public hearing Feb. 19. That bill would create a State Tax Modernization Commission that would review the state’s tax code and make recommendations by December.
An Appropriations Committee chairman said the proposal was blocking efforts to craft a new two-year budget, according to the Omaha World-Herald.