Three Omaha mayoral candidates say they're eager to use a potential burst of city sales tax revenue to eliminate the controversial restaurant tax and to lower local property and sales tax rates.
City Councilwoman Jean Stothert, former Councilman Dan Welch and State Sen. Brad Ashford each said Tuesday that Gov. Dave Heineman's proposal to overhaul state tax policy could result in payback for taxpayers.
Omaha businessman Dave Nabity has applauded the governor's proposal, but he warned his rivals against betting on the city's finances.
“Rushing out to make promises on tax windfalls, when they are not even close to happening yet, is no way to lead a city,” Nabity said in a statement.
Stothert said Tuesday that she would propose that payers of local property tax receive, dollar for dollar, any sales tax windfall that the City of Omaha gets from changes to income taxes at the state level. She also pledged to eliminate the restaurant tax and lower city property and sales tax rates.
Welch described such tax reduction proposals as a “no-brainer.”
“It's only fair to protect taxpayers by returning windfall tax dollars to the pockets of hard-working Omahans,” Welch said in a statement. “I'd start by eliminating the restaurant tax and eliminating (the city's share of) property taxes.”
Mayor Jim Suttle's campaign consultant, Gary DiSilvestro, said the mayor is studying the governor's tax plan but is mindful that eliminating sales tax exemptions could harm nonprofits such as churches or hospitals.
The governor, Stothert, Ashford and others have acknowledged that it is difficult and too early to accurately project how much local sales tax revenue could increase.
“But there will be some,” Ashford said Tuesday. That money can help eliminate the restaurant tax or reduce property tax rates, he said, but should also go to bolster the city's cash reserves.
“Whatever we do, it should go to reduce taxes in the city and create security for the future,” Ashford said.
Heineman's most ambitious tax-shift plan, co-sponsored by Ashford, would eliminate Nebraska personal and corporate income taxes. It would replace that revenue by eliminating roughly half the state's $5 billion worth of sales tax exemptions.
Nebraska's sales tax rate of 5.5 percent would apply to purchases newly eligible for sales taxes, along with any local sales tax levied by a city. In the case of Omaha and Lincoln, the local sales tax is 1.5 percent. That means the city could generate more revenue if more purchases were taxed.
Proponents say the revenue that cities would generate from the tax overhaul could total in tens of millions.
Stothert said Omaha could see anywhere from $35 million to $216 million in new sales tax revenue, depending on the changes made. Ashford said he was stunned to learn that one rough estimate put Omaha's potential new sales tax revenue at up to $191 million a year. Other estimates have ranged from $40 million to more than $100 million.
Nabity said there are too many variables. Heineman could ask that more sales tax receipts be returned to the state, he said, or Omaha manufacturers could be forced to pay sales taxes on raw materials — rendering them less competitive.
“No CEO from the business community would rush out and make promises to the taxpayers without knowing clearly what was going to happen with tax policy,” Nabity said.
For a city's finances, the benefits of relying more on sales taxes are fairly “cut-and-dried,” said John Deskins, a professor of economics at Creighton University.
Broadening a local sales tax base by eliminating exemptions, Deskins said, also allows officials to lower a city's overall sales tax rate.
That idea, he said, can become “fundamentally attractive.”
“That's going to be more efficient,” Deskins said. “To be able to use that to offset the higher rates would be a fantastic option.”
Stothert said that Omahans and business owners have “struggled with stifling property taxes for years” and that tax reform at the state level could lead to significant local tax cuts.
“Gov. Heineman's plan to eliminate state income taxes is bold,” she said Tuesday in a statement. “We must also be bold, both to seize the opportunity for real reform at the local level and to keep those dollars out of the hands of those who want to spend it.”
If cities benefit, Heineman said, he would expect a good share of the money to go toward property tax relief. But he also would explore whether the state could recapture some funds to help finance his proposed $2.4 billion tax shift.
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