LINCOLN — Life may be good in Nebraska, but death is expensive.
Because Nebraska is one of eight states with an inheritance tax, it made a recent Forbes article titled "Where Not to Die."
Nebraska Gov. Dave Heineman cited the unwelcome publicity Thursday in his State of the State address before announcing he wants to hang a toe tag on what some call the "death tax."
"We have people leaving or changing their place of residence to avoid this tax," said Omaha Sen. Abbie Cornett, who introduced Legislative Bill 970 to end the county inheritance tax. "People with assets become snowbirds, and then they pay income tax in those other states."
The tax is paid to counties by those who inherit property, cash or other assets from deceased relatives. It is sometimes confused with an estate tax, which the state collected until it was eliminated by the governor and lawmakers in 2007.
But those targeting the inheritance tax had better prepare for battle.
The state's 93 counties receive proceeds from the tax, which amounted to nearly $42 million in 2007-08, the most recent figures available from the Nebraska Association of County Officials.
Reaction among county officials to the governor's proposal was swift, harsh and dire.
"From the county's perspective, it's a horrible idea," said Joe Lorenz, director of budget and finance for Douglas County. "I think the governor is doing this so he can say he cut taxes without having to cut services for the state."
Douglas County collects between $7 million and $9 million per year from the tax, Lorenz said, so it would be forced to raise property taxes to make up for the loss.
Counties are still smarting from last year's loss of about $10 million in state aid, money the Legislature eliminated to help close a nearly $1 billion budget gap. Now they face a potential slash of funding that is four times as great.
"It's devastating," said Lancaster County Board member Deb Schorr, who estimated her county collects about $6 million per year from the tax. "If this goes through, there will be layoffs."
Some leaders have put a target on the tax because they believe it goes into slush funds for the counties.
While that might have been the case in the past, most counties put the money into their general funds, using it to pay for essential services while helping to reduce property tax rates, said Larry Dix, director of the county association.
"I can't tell you how many counties used their inheritance fund last year to open roads (in winter) to get school buses through," he said.
If the inheritance tax ends, many counties will be left with no choice but to raise property taxes, Dix said.
Others argue it's time for tough choices. Brad Stevens, director of the Americans for Prosperity-Nebraska conservative advocacy group, called the inheritance tax "a job killer" and praised the governor's proposal.
The proposal intrigued Sen. Brad Ashford of Omaha, who has long been a proponent of merging county and city governments. Ashford said ending the inheritance tax could inspire such mergers out of necessity.
Sen. John Wightman of Lexington knows how closely guarded the inheritance tax is because he twice has supported legislation to reduce it.
Those efforts were met with almost universal opposition from county officials, he said.
Wightman said he wants to talk to constituents before he decides whether to support the governor's proposal.
But he also said he might favor increasing exemptions or phasing out the tax gradually to allow counties to adjust.
During his speech, the governor predicted county officials would protest. But he sounded firm in saying the inheritance tax should meet the same fate that the estate tax did five years ago.
"Nebraska families have had to tighten their belts and learn to do more with less," Heineman said. "So should government."
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