Gov. Heineman's tax plan draws swift opposition - Omaha.com
Published Saturday, January 19, 2013 at 12:00 am / Updated at 8:47 am
Gov. Heineman's tax plan draws swift opposition
Among the sales tax exemptions targeted for elimination
Energy used in industry: $122.7 million

Purchases by churches, colleges, medical facilities: $181.6 million

College dorm room/hospital room rentals: $71.4 million

Medical equipment: $36.7 million

Medicine: $88.4 million

Containers used by businesses: $19.4 million

Molds and dies: $4.4 million

Seeds for commercial, agricultural use: $42 million

Agricultural chemicals: $87 million

Energy used in agriculture: $82 million

Manufacturing components: $1.4 billion
Film rentals, $166,000

LINCOLN — Opposition to Gov. Dave Heineman's tax reform plan popped up almost as soon as more details hit the street Friday.

From farmers to pharmacists, church leaders to college administrators, many groups raised concerns about specific sales tax exemptions he's proposing to eliminate.

Others disagreed with his basic idea of ending state income taxes and replacing the lost revenue with sales taxes.

“I think it's a lose-lose proposal for a lot of areas of Nebraska,” said State Sen. Jeremy Nordquist of Omaha, adding that the plan amounts to tax shift instead of a tax cut.

But Americans for Prosperity, a national group pushing limited government and lower taxes, said the governor's plan would mean greater take-home pay for working-class Nebraskans.

“We are confident once Nebraskans learn more about this proposal, the Legislature will feel the grassroots pressure to eliminate the income tax,” said the group's state director, Brad Stevens.

Heineman pitched his plan as a way to boost Nebraska's economic growth and keep more young people in the state.

He said bold action is needed to reduce the level of taxes in the state, which he said are too high, and to lure businesses and high-paying jobs.

“I don't have any doubt that for the average Nebraskan, it's a huge benefit,” he said, challenging critics to offer up their own suggestions if they don't like his proposal.

Press release from the governor's office on the bills
Summary of exemptions kept and ended under bill No. 1. (PDF)
Summary of exemptions kept and ended under bill No. 2. (PDF)

Heineman has set a goal of eliminating individual and corporate income taxes, which would include taxes on retirement income, and has promised to keep the changes revenue neutral.

On Friday, he offered two proposals — one larger, one more modest — for replacing the lost revenue by ending selected sales tax exemptions.

“These two bills demonstrate the different opportunities and challenges regarding tax reform,” he said.

Both would leave sales tax exemptions for food in place.

But several other exemptions would be targeted by one or both proposals.

Among them are exemptions for prescriptions, medical equipment, hospital beds and college dormitory rooms, agricultural chemicals, railroad cars and locomotives, and seeds for commercial and agricultural use.

The biggest exemption targeted, with an estimated value of $1.4 billion, is one provided for ingredients and component parts used in manufacturing.

The larger proposal would make churches, private colleges and medical facilities pay sales taxes on their purchases.

Machinery, energy and water used in both agriculture and business are on one or both lists.
Steve Nelson, president of the Nebraska Farm Bureau Federation, said the proposals were very concerning.

They would mean “huge increases” in sales taxes for farmers and ranchers, raising their costs even in years when agriculture hits a down cycle.

“We do not believe you can have a comprehensive tax reform conversation without including property taxes,” he said.

Heineman said corporate leaders have told him they're OK with the trade-off of ending corporate and personal income taxes.

But Jamie Karl, a spokesman for the Nebraska Chamber of Commerce and Industry, said it will take time for individual chamber members to sort out whether they win or lose under the governor's plan, and even more time for the chamber as a whole to decide whether to back the plan.

“I think there's just so much to consider,” Karl said. “If we have 1,500 members, I'm sure we're going to have 1,500 opinions.”

He noted that about one-third of the state chamber members are manufacturers, who would be affected by several of the targeted exemptions.

Nebraska's hospitals could face the loss of five exemptions, said Nebraska Hospital Association spokesman Adrian Sanchez.

They include exemptions on purchases by nonprofit hospitals, energy used by industry, hospital beds, medical equipment and prescription drugs.

Losing the prescription drug exemption would create some “very, very large concerns,” said Joni Cover, executive vice president of the Nebraska Pharmacists Association.

“It's going to impact a large number of Nebraskans,” she said.

College officials said the proposal could increase costs for students and their families.

University of Nebraska spokeswoman Melissa Lee said that putting sales taxes on the cost of dorm rooms could negate the two-year tuition freeze that the governor supports.

Charging sales taxes on purchases by private colleges and universities, such as Creighton and Nebraska Wesleyan, would add costs for their students, said Thomas O'Neill Jr., president of the Association of Independent Colleges and Universities of Nebraska.

It also would put the institutions at a disadvantage compared with public institutions, he said, because government-owned institutions would still be able to make tax-exempt purchases.

Heineman said the proposals would be introduced as two separate bills on Tuesday. Omaha Sens. Brad Ashford and Beau McCoy will introduce the bills.

One would allow for the complete elimination of personal and corporate state income taxes by ending $2.4 billion worth of sales tax exemptions.

That would mean no taxes on income of any sort, including Social Security, military retirement or other retirement income.

The second, more modest bill would end $395 million worth of exemptions, allowing for the elimination of the corporate income tax and a reduction in income taxes for retired people.

Under that proposal, the first $12,000 of retirement income for married couples and $6,000 for individuals would not be taxed.

The governor emphasized that the list of exemptions was a starting point, and that he wanted input from all Nebraskans on which sales tax exemptions should go away and which ones were justified.

But he rejected criticism of the plan as a tax shift that benefits the wealthy and puts more burden on the poor and middle class, who pay a greater share of their income in sales taxes.

One such critic is Vince Powers, chairman of the Nebraska Democratic Party.

“When you talk to most Nebraskans, they say the sales tax is fairer,” Heineman said, because you only pay when you buy something.

The proposals come a year after the governor signed a handful of new sales tax exemptions into law. Two of those, exemptions for computer data centers and companies that produce “biochips,” would be eliminated under his broader proposal.

Contact the writer: 402-473-9583, martha.stoddard@owh.com

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Contact the writer: Martha Stoddard

martha.stoddard@owh.com    |   402-473-9583    |  

Martha covers the Nebraska Legislature, the governor, state agencies, and health, education and budget issues out of our Lincoln bureau.

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