LINCOLN — One state lawmaker wondered aloud Friday about the big fuss over eliminating the state’s inheritance tax.
Few people pay it, the tax for immediate next-of-kin is only 1 percent, and counties need the $48 million a year it generates for local services, roads and bridges, State Sen. LeRoy Louden of Ellsworth said.
And the rationale for eliminating the tax — to improve Nebraska’s “tax climate ranking” by some national think tanks — just doesn’t hold water, Louden said. Few businesses decide where to locate or expand based on what a state levies in inheritance taxes.
“We’re just kind of chasing a rainbow,” the senator said.
Louden’s comments came during an interim state legislative hearing Friday on the elimination of inheritance taxes, and whether there were sound alternatives to finance county operations.
A parade of witnesses from Nebraska counties, including Douglas and Lancaster, said they would be hard-pressed to maintain services without inheritance tax revenue and that there were no attractive alternatives.
Raising property taxes is probably the most logical alternative, they said, and people complain much more loudly about that tax.
Michael Kelsey of the Nebraska Cattlemen offered mild support for doing away with the tax, but he said his members wouldn’t support it if it meant higher property taxes.
“This is not a simple issue for us,” Kelsey said. “Taxing the transfer of wealth is an anathema for us.”
Gov. Dave Heineman has been pushing for the elimination of the inheritance tax, saying that such a “death tax” contributes greatly to the state’s poor ranking for its tax climate.
Kiplinger, for instance, has rated the state among the bottom 10 for retirees, based in part on the inheritance tax, which is levied by only eight states, including Nebraska.
The governor, through his spokeswoman, reiterated his belief that counties can cut spending and do without inheritance tax revenue.
“Nebraskans and the governor are opposed to property tax increases. The key is to reduce spending to live within their means like Nebraska taxpayers do with their family budgets,” said the spokeswoman, Jen Rae Hein.
Jim Vokal of the Omaha-based Platte Institute, a conservative economic think tank, said Nebraska is “smothered in taxes,” and the inheritance tax is one of the reasons.
“It plays a role in driving people out of the state,” Vokal said, to prevent their descendants from paying the inheritance tax.
The Platte Institute did not testify at Friday’s hearing, but the county officials who did said that cutting spending on things such as road maintenance, health services and veterans is not an attractive or easy option.
Funding options offered at the hearing were mostly tax shifts, in which the state picked up expenses now being funded by the counties, including for courts, jails and aid to the poor.
Larry Dix of the Nebraska Association of County Officials said he has looked at several alternatives to the inheritance tax to maintain county services, and there was “no magic bullet.”
He said businesses look at quality schools, roads and the workforce in selecting where to locate, not tax rankings. Such tax ratings, Dix said, vary widely and also indicate good things about Nebraska.
For instance, while Nebraska ranked 31st in the Tax Foundation’s latest State Business Tax Climate Index, that same conservative group rated the state No. 1 for locating a new business.
A recent newsletter from the governor noted that Nebraska had been recognized by CNBC as one of America’s Top 10 Best States for Business and that the U.S. Chamber of Commerce ranked Nebraska sixth best for tax and regulatory climate.
Heineman, however, has said the state needs to do better and should eliminate the inheritance tax, as it did the state estate tax.
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