LINCOLN — Gov. Dave Heineman’s background as an Army Ranger is coming in handy.
During two days of public hearings, his bills to change the state’s tax system have come under a withering bombardment by just about every major interest group in Nebraska — from business, banking and farm groups to those representing hospitals, churches and the poor.
They said Heineman’s proposals would force manufacturing jobs out of state, dry up farm profits like a 100-degree day, shift the tax load onto the poor and ruin the low unemployment and “Good Life” of the state.
The tax proposals, they said, should quickly die.
“These bills will kill the goose that lays the golden egg in Nebraska,” Kearney farmer Tim Kelliher said of the state’s agricultural sector.
But Heineman stood firm Thursday, saying that, despite the verbal pounding, he’s encouraged.
Nebraskans, as well as lawmakers, he said, really do want a discussion about modernizing the state’s tax system.
He said that’s the case despite the loud criticism of his plan to eliminate income taxes on individuals and corporations by shifting the tax load onto previously tax-exempt sales of things like seed, energy and manufacturing inputs.
“I’m not discouraged,” Heineman said. “We’ve got to have the courage to act.”
It now appears that the tax proposals will be the subject of a “working group” discussion to sort out what’s possible and what isn’t.
Heineman wants those talks to result in a bill yet this year, but that remains to be seen.
One of the co-sponsors of his proposed legislation, State Sen. Brad Ashford of Omaha, said he sees a chance to craft a wide-ranging tax package that would expand sales taxes onto more services and eliminate some exemptions in exchange for lower income and property taxes.
“I think we should do something significant on property tax relief,” Ashford said.
The comments came after an afternoon-long public hearing at the Legislature on the less-bold of the two tax bills proposed by Heineman.
Legislative Bill 406 would shift about $400 million in taxes by eliminating the corporate income tax, reducing taxation of retirement pensions and doing away with a handful of sales tax exemptions, including those on agricultural chemicals and seed, and energy and molds used by industry.
Heineman’s more ambitious proposal, LB 405, would end $2.4 billion in sales tax exemptions — including long-running exemptions for hospitals, nonprofit groups, churches, farmers and business — in exchange for repealing corporate and individual income taxes.
That bill was assailed Wednesday as unworkable and a job killer in a marathon public hearing that lasted nearly 10 hours and ended at 11:10 p.m.
The hearing Thursday on LB 406 provided more criticism, but it was much shorter. An awkward silence greeted the call for proponents of Heineman’s plan to step forward and testify.
Heineman said the lack of support was because “the people who come out best on this are working Nebraskans, and you know what they’re doing — they’re working at their jobs.”
During the hearing, he suggested forming a working group of the legislative and executive branches to recraft a tax proposal so it can be debated in the current 90-day session.
But opponents of both bills said the tax shifts envisioned by Heineman are too big and complex to meld together in an already packed session.
Many voiced support over the past two days for LB 613, a bill from Sen. Paul Schumacher of Columbus to create a “Tax Modernization Commission” to study and, by December, suggest ways to improve state tax policy.
Sen. Galen Hadley of Kearney, who moderated the two days of hearings as chairman of the Revenue Committee, said he wants to “let the dust settle” before the committee decides what to do with Heineman’s proposals.
Hadley said it was too early to kill the bills.
“I want to be fair,” he said. “I think everyone agrees we need a discussion of our tax system.”
Hadley did say he’s been convinced that taxing “inputs” — the steel used to make mufflers, for instance, and the seed and fertilizer used to grow crops — is not a good idea.
Taxing those materials got the harshest criticism from farmers and industries.
A representative of Nucor Steel in Norfolk said Wednesday night that the company would drop more than $215 million in planned expansions because LB 405 — by taxing energy and scrap iron purchased by the firm — would add $30 million a year in new taxes.
Kelliher, the Kearney farmer, said he’d buy seed in Kansas and equipment in other states to avoid the proposed taxes in Nebraska.
“This will create a sucking sound of ag investment leaving the state,” he said.
Ashford, who was busy in another committee hearing Thursday and did not testify, said he’s already concluded that Heineman’s bills need dramatic rewriting.
Even Heineman, the old soldier, seemed to soften ever so slightly, saying he’s willing to discuss taxing more services and including property taxes in his proposals — if his goal of cutting income taxes to attract more jobs and people to the state is still achieved.
“I’ll listen,” he said. “We’ve got to have a conversation about the future.”
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