If at First You Don’t Succeed…Nebraska Governor Intends To Address Tax Reforms Once Again At the Next Legislative Session

With a low unemployment rate of just  4.3 percent, a high quality of life index ranked fourth in the country, rising revenues and a projected budget surplus of $81 million, combined with a wide range of successful business sectors, Nebraska has a lot of which to be proud. Yet there still remains an outward migration of wealth ($2.5 billion between 1992 and 2010), and concerns about future agricultural issues. Governor Dave Heineman believes that the missing component in his state’s otherwise enviable performance is a tax structure that is fair and equitable for both its citizens and businesses.

On January 18, of this year, citing the need to raise Nebraska’s lagging business tax climate into a Top Ten status, versus its current ranking of 31st, the governor’s administration introduced a plan (LB 405) to reform the state’s tax structure. By eliminating $2.4 billion in sales tax exemptions, the Governor felt that the state could significantly reduce, or eliminate, individual and corporate income taxes, while keeping the budget revenue neutral. The measure met with strong opposition from both the farming and industrial sectors. The agricultural community felt that resolving high property taxes should be the state’s first priority. The industrial community felt that maintaining sales tax exemptions was necessary in order to promote statewide business growth and entice outside businesses to relocate to Nebraska.

Within just thirty days of its presentation, the governor yielded to the opposition and stepped back from his proposals.  The legislators agreed with the need to reform Nebraska’s out-of-date tax structure, and while praising the governor’s efforts, felt that his proposals were too aggressive and needed to be re-worked.

Based on that conclusion, the independent Tax Foundation, along with Nebraska-based Pratt Institute for Economic Research, conducted extensive studies and interviews with business leaders and lawmakers.

Their conclusions are published in the report, Building on Success: A Guide to a Fair, Simple and Pro-Growth Tax Reform for Nebraska.

Their findings enumerated the many diverse comments of those surveyed:

• Income tax rates and corporate tax rates are too high for the region, making it difficult to recruit new talent.
• A demand for tax incentives to offset high corporate tax rates.
• Reduce high property taxes levied on business equipment purchases.
• Tax credits from the state to help offset high property taxes levied at local level.
• Cultural biases against the Plains states as not exciting or productive places to live and work.

From his speech delivered at the 2013 Governing’s “Cost of Government Summit” in September, it is abundantly clear that Governor Heineman, in spite of the legislative setbacks and negative feed-back, has no intention of giving up on his fight. He cited success story after success story of states that have restructured their tax codes, enhancing their economies as a result. He sees the current tax structures, designed in the 1960’s, as antiquated and not representative of the needs of the future.

Little has changed in the structure of his proposal – eliminating income and corporate tax, and offsetting lost revenue by eliminating sales tax exemptions. Officials are in the process of conducting five public hearings on the subject. By December, the state’s Tax Modernization Committee (a committee of legislators formed as a result of this year’s tax debates) will issue their recommendations. But the governor remains determined, saying, “I am confident that next year the total focus of our session will be the tax issue. They are not leaving until they get this one done!”