LINCOLN — As Kendra Schmit changed her daughter's diaper, she considered what a $250 to $300 tax break could do for her family.
While not a windfall, it's not insignificant.
It would help pay child-care expenses, said the married mother of three. Or cover a monthly car payment. Or go toward the fuel bills for her husband's commute to his job in Bellevue.
"I think every little bit helps nowadays," Schmit said.
Gov. Dave Heineman must have been hearing similar comments.
Saying he wanted to help the middle class and spur job growth, Heineman proposed a three-pronged package of tax cuts Thursday aimed at helping businesses and the wallets of average Nebraskans.
One area of cuts would be state income taxes.
Under his proposal, a married couple with two kids whose adjusted gross income was $75,000 would see a $255 decrease, about an 11 percent reduction. A similar couple with $100,000 in income would see a $290 savings, a 7 percent cut.
"Our highest priority should be tax relief for Nebraska's hard-working middle-class taxpayers," Heineman told state legislators in his annual State of the State address. "Our hardworking taxpayers are tired of government taking too much of their paycheck."
The pro-business Republican's tax cut plan would also reduce Nebraska's relatively high corporate income taxes and eliminate the state's last inheritance tax, one that is paid to counties. The state estate tax was eliminated in 2007.
The two income tax cuts would reduce revenue to the state by $130.8 million in the first full year and $326.6 million over the first three years. The end of inheritance taxes would mean about $42 million a year less revenue for Nebraska's 93 counties.
State business representatives cheered the news, saying that while the cuts were modest, they would help enhance the state's already improved business climate.
State senators generally applauded the proposal, but several expressed reservations about whether the state can afford tax cuts amid a still-soft economy and while funding other state obligations, such as social services, state aid to public schools and highway construction.
A deeper look into the state budget will be required to determine whether tax cut plans introduced by the governor and others would work.
"I'm all in favor of tax cuts, but you have to be able to afford them," said Omaha Sen. Steve Lathrop, a leading Democrat in the Legislature.
Norfolk Sen. Mike Flood, a Republican, said there will be a keen debate about where best to cut taxes and whether it's affordable, but he liked the tone of the governor's 20-minute address.
"What a refreshing change from the economic crisis of the last four years, to be talking about how to move the state forward," Flood said.
Two competing tax plans were introduced by Democrats in the Legislature on Thursday, and plenty of legislation is expected aimed at aiding business growth.
A proposal from Omaha Sen. Heath Mello focuses on cutting local property taxes, which he said is the top tax gripe he hears, and Sen. Jeremy Nordquist would eliminate taxes on Social Security benefits to aid retirees.
Nordquist, a member of the budget-writing Appropriations Committee, said the governor's plan is weighted too heavily toward high income earners and corporations.
The Nebraska Democratic Party also criticized the plan as "the wrong approach," pointing out that eliminating the inheritance tax — a favorite of Tea Party activists and conservative groups — primarily would help those leaving heirs large farms and ranches.
"Those (tax cut) dollars would create more economic bang for the buck if they were weighted more heavily toward lower- and middle-income families who need to put food on the table or pay higher education costs for their kids," Nordquist said.
Bellevue Sen. Abbie Cornett, a Republican who will carry the governor's tax cut package, said Heineman has demonstrated to her that the state could manage the cuts he proposes under a projected 3 percent budget growth.
Heineman also indicated that spending cuts will help finance the cuts. "Nebraska families have had to tighten their belts and learn to do more with less. So should government," he said in his speech.
Cornett said the tax package was drafted by the governor, who was willing to take up her suggestion to broaden and "balance" it.
"It's time to look at our middle class and who is carrying the burden," said Cornett, who heads the Revenue Committee, which reviews state tax policy.
State business groups have been pushing for individual income tax cuts to aid recruitment of highly paid workers and for an elimination of corporate income taxes to enhance the state's business-friendly image.
The governor's plan doesn't go that far, but Barry Kennedy, president of the Nebraska Chamber of Commerce and Industry, said the proposals are probably the best that can be accomplished.
"A lot of this still hinges on what kind of economic forecast we get in February, but I think he's on the right track," Kennedy said.
Some highlights of the governor's plan:
>> A family of four with an adjusted gross income of $30,000 would see the largest percentage state income tax cut, a 29.5 percent decrease, or $42. The smallest percentage cut would be for families with more than $1 million in income — a 2 percent cut, or a $1,180 state income tax decrease.
>> Income tax brackets would be adjusted to address a situation that now results in billionaire Warren Buffett paying the same income tax rate as someone whose adjusted gross income is just above $54,000.
>> Corporate income tax rates would drop from 7.81 percent to 6.70 percent on income over $100,000. That would reduce tax liability for small businesses by 13 percent, the governor said.
Kennedy said the cuts might help convince companies to add more employees and would enhance how prospective businesses view the state's tax environment.
The Cornhusker State climbed to No. 29 in the most recent business tax climate index compiled by the Tax Foundation, a public policy think tank in Washington, D.C., up from 45th in 2006. Heineman said the state can do better.
Kennedy said that if Nebraska can climb into the top third of states in tax climate, it will be "real attractive."
Businesses pay attention to such rankings, he said, and Nebraska already fares well in other categories, such as a quality workforce, a good education system and low crime rates.
Heineman, in his speech, said the state has a lot of other things going for it. It has the nation's second-lowest unemployment rate and has received national recognition for its safe, affordable and family-friendly cities.
Cornett agreed, saying she's seeing plenty of inquiries from businesses. "We've got a lot of good things going for us."
World-Herald staff writer Martha Stoddard contributed to this report.
Contact the writer: 402-473-9584, paul.hammel@owh.com
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