Gov. Dave Heineman proposed tax cuts Thursday to help businesses and the middle class. He is shown with State Sen. Abbie Cornett of Bellevue.
JAMES R. BURNETT/THE WORLD-HERALD
Published Sunday January 15, 2012
LINCOLN — When state senators knock on constituents’ doors, the top complaint they get is that property taxes are too high.
And the latest U.S. Census Bureau figures seem to back up the grumbling: Nebraska ranks significantly higher in property taxes, as a percentage of personal income, than income taxes.
So why is Gov. Dave Heineman aiming his new tax-cutting plan on individual and corporate income taxes and the inheritance tax, and not on those much-griped-about property taxes?
Proponents say the reason is that those taxes are much easier to reduce; that such cuts can more greatly transform Nebraska’s image into a low-tax state.
“The question is ‘Where do you get the biggest bang for your buck?'” said State Sen. Abbie Cornett of Bellevue.
Democrats immediately jumped on the Republican governor’s plan as misdirected, giving too much to the wealthy and corporations and not enough to the poor and middle class.
“If we’re going to talk about tax relief, property tax is the No. 1 complaint I continually hear about and my colleagues hear about,” said Sen. Heath Mello of Omaha.
Two other competing tax-cut plans have been introduced.
One, from Mello, would provide a property tax break. Another, from Sen. Jeremy Nordquist of Omaha, would gradually eliminate income taxes on Social Security benefits, providing relief for retirees.
It sets up a debate in the Nebraska Legislature about where best to cut taxes: those on income, property, maybe even sales taxes?
“Of the 49 senators, there are 49 different ideas on how to reduce the tax burden on Nebraskans,” said Sen. Mike Flood of Norfolk, speaker of the Legislature. “I live in a rural area and I hear from agricultural producers every day about the impact of property taxes and the rising land values that drive that.
“I think everything belongs on the table,” Flood said.
Much of the governor’s tax-cut plan is aimed at improving the state’s image to prospective businesses.
A conservative think tank, The Tax Foundation, ranks Nebraska 29th-best among the states in its latest index of “business tax climate.” That compares with a 2006 ranking of 45th.
Heineman, who pays keen attention to such indexes, said last week that Nebraska has made the most improvement of all but one other state in the past five years in those rankings. But like a football coach seeking a BCS bowl bid, the governor is pushing to do better.
The goal, state business leaders say, is to get Nebraska into the top 20 or at least into the top 25.
“If we could get in the upper teens, then I think we’d be real attractive,” said Barry Kennedy, president of the Nebraska Chamber of Commerce and Industry.
His group has been pushing for personal income tax reductions and an outright repeal of corporate income taxes.
The chamber maintains that Nebraska businesses have a hard time recruiting workers for good-paying high-tech jobs because the state’s personal income tax system has a rate of 6.84 percent at the highest bracket. That ranks 18th-highest in the nation and higher than every adjacent state except Iowa.
Nebraska also gets downgraded because its corporate income tax rate is higher than the top rate for individual income taxes, Cornett said.
The governor’s plan reduces both top rates to 6.7 percent. It also makes a modest increase in where the top bracket begins for individual income taxes, from $54,000 to $60,000 in income.
A family with two children and adjusted gross income of $75,000 would get a $255 state tax break, about 11 percent less than now. Corporations and small businesses would get a 13 percent break.
Cornett, who sits at the tax-cutting steering wheel as head of the Legislature’s Revenue Committee, said the proposed income tax cuts do focus most of the benefits on the middle class — the largest group of taxpayers and “the backbone of our state.”
The reduction in corporate income tax, as well as elimination of the inheritance tax, would make the most difference in improving the state’s tax-ranking by the Tax Foundation, the senator and others said. Those rankings give more weight to income taxes and corporate taxes than property taxes.
The inheritance tax is an important revenue source for counties, providing $42 million a year statewide and $7 million to $9million alone in Douglas County. Cornett said she is looking at ways to mitigate that impact.
However, Nebraska is one of only eight states that still levies an inheritance tax — paid by those who inherit businesses, farms and ranches — which landed the state in a recent Forbes magazine article titled “Where Not to Die.”
“When you’re in an article like that, it doesn’t look very well,” Cornett said, adding that Nebraska’s inheritance tax forces some residents to move out of state to avoid paying it.
She said because renters and elderly apartment dwellers don’t pay property taxes, an income tax break affects more Nebraskans.
And because counties, cities and school districts determine how much property tax to levy, a cut provided by the state can be wiped out by a school board or city council, Cornett said.
“The state does not control property taxes,” she said, adding that a tax-break package passed in 2007 included a property tax rebate that provides about $80 a year for the owner of a $100,000 home.
Mello said that tax break doesn’t go far enough. He said much of the current benefits go to absentee landowners such as billionaire Ted Turner, one of the state’s largest landowners.
Mello’s $76 million plan would focus on homeowners, providing about $150 in property tax relief on average.
“My tax package comes with half the cost and three times the relief” for the average Nebraskan, Mello said.
Probably a bigger question than which tax to cut is whether the state can afford to cut taxes at all.
Tax revenue is still plodding along, and Nebraska is looking at a $400 million shortfall in a couple of years between projected needs for state services and the taxes that fund them.
Will the state, for instance, have to cut back on education spending or pare back its plan to increase highway construction work by $70 million to afford a tax cut?
“We’ve got to look at the whole budgetary picture and see how this is going to fit, and if it can fit at all,” said Sen. Greg Adams of York, a key member of the Revenue Committee and head of the Education Committee. “There’s a long ways to go yet on this.”
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