LINCOLN — Lancaster County is disputing arguments by Gov. Dave Heineman and others that Nebraska counties could do without the state's inheritance tax.
Those statements were made after the Douglas County Board voted last month to use $500,000 in inheritance taxes to aid a cancer center project in Omaha. Heineman said that was proof that the tax wasn't needed to finance essential government services.
But the Lancaster County Board, in a letter Tuesday to Heineman, said it was a mistake to make that assumption.
The letter stated that the $8 million Lancaster got from inheritance taxes last year helped keep property taxes down and helped balance the county budget.
“There is no way we could cut $8 million without laying off a significant number of employees, cutting essential services and putting public safety at risk,” said Deb Schorr, chairwoman of the Lancaster County Board.
Inheritance taxes figure to be one of the hottest issues of the 2013 session of the Nebraska Legislature.
Heineman has pledged to again seek elimination of the state's inheritance tax after a similar proposal was shot down this year.
He and other conservatives say that Nebraska is at a competitive disadvantage in levying a tax that 42 other states do not, and that counties could cut nonessential spending to live without the $40 million to $48 million annually they get from inheritance taxes.
County officials stormed the State Capitol to oppose repealing the tax last spring, saying it was essential to paying sheriff's deputies, financing health care for the poor and paying other county expenses.
In the end, state lawmakers dropped the repeal bill, saying it was more of a cosmetic move that would likely prompt a hike in a much more unpopular tax paid by many more people: property taxes.
Heineman was traveling Wednesday afternoon and unavailable for comment, a spokeswoman said.
But John S. McCollister of the Platte Institute, a conservative economic think tank based in Omaha, said Douglas County's vote on the cancer center lends credence to the belief that counties can do without the inheritance tax.
“We flippantly call it the ‘slush fund,'” McCollister said of the tax.
Mary Ann Borgeson, the Douglas County board member who sponsored the cancer center proposal, said it was unfair to connect the county's decision to Heineman's tax-cutting plans, or to label the contribution to the University of Nebraska Medical Center project as unessential.
Borgeson said the governor told her before the Douglas County vote that he was planning to once again seek repeal of the inheritance tax.
She said the cancer center is a worthy use of the tax revenue, because the center will provide high-paying jobs and economic growth.
It wasn't the first time counties have used inheritance tax funds to aid a state health care project.
Borgeson and Larry Dix of the Nebraska Association of County Officials said several counties in northeast Nebraska utilized inheritance taxes to aid construction of a new nursing college classroom facility in Norfolk.
“At that point in time, no one thought that was a bad idea. The counties decided we need more nurses,” Dix said.
How counties use the tax revenue varies widely, he said, though many rural counties save up their inheritance taxes to fund major projects like a new bridge or road grader.
Douglas County uses the $9 million it receives in annual inheritance taxes to finance the county's assisted living-mental health center, general assistance for the poor, the health department and veterans services.
Lancaster County puts inheritance taxes into the county's general fund, which finances a wide array of services, from the jail to mental health services. The $8 million it received last year represents about 17 percent of what the county receives from property taxes.
The tax financed the equivalent of 150 county jobs, the county's letter stated. Eliminating the inheritance tax would mean laying off those employees or increasing property taxes by $64 per year for the owner of a $150,000 property.
Heineman has said the state cut spending to offset the elimination of a state estate tax and that counties should be able to do the same if inheritance taxes are phased out.
He also has argued that taxing inherited property hurts the state's tax ranking and causes retirees to flee the state to avoid the tax on their children or other relatives.
The three county officials said they rarely if ever hear complaints about inheritance taxes, while the griping pours in about high property taxes.
And, they point out, businesses don't pay inheritance taxes, so it's not an impediment to economic growth.
Said Borgeson: Would businesses rather have higher property taxes?
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