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LINCOLN — Gov. Dave Heineman urged Nebraska lawmakers to give a thumbs up or thumbs down yet this year on his tax overhaul proposal.
At a legislative hearing Wednesday, Heineman said it would be better to have a decision, no matter what it is, than to leave businesses in a state of uncertainty.
“It needs to be done now, in this session,” he said.
On that point, Heineman found a measure of agreement with the long line of organizations and individuals who stayed into the night to testify against his plan.
John Cederberg, speaking for the Nebraska Chamber of Commerce and Industry, asked that Legislative Bill 405 be quickly killed.
He said it's OK to study the issue, but the continued existence of a proposed law could scare away business prospects that would fear the increased sales taxes.
“We don't want LB 405 hanging over our heads. This one is not good,” said Cederberg, who helped draft two of the state's main economic development bills.
Heineman has proposed two tax bills, but LB 405 embodies his preferred plan. It would eliminate the state's corporate and individual income taxes and replace the $2.4 billion worth of lost revenue by ending 27 sales tax exemptions.
If the Nebraskans crowding into the Revenue Committee hearing room and an overflow room could vote on the bill, the plan would be buried. Committee members sounded skeptical as well.
“We're taking a big risk here,” State Sen. Burke Harr of Omaha said to Heineman. “I need a sense of comfort that, if we do this, it will pay off.”
He pointed to the fiscal note on LB 405 showing that it would reduce the amount of money coming into the general fund.
Legislative fiscal analysts estimated that it would create a $340 million budget shortfall by the 2016-17 budget year. Nebraska Department of Revenue researchers pegged the shortfall at $171 million for the same year.
Heineman expressed confidence that the proposed changes would create a tax climate fostering the growth of high-paying jobs. He said it would help keep young people in the state, as well as retirees and veterans.
“It is a significant risk not to change,” he said.
Earlier in the day, Heineman vowed to fight for the proposal by standing up to the business interests who, he said, are trying to preserve their sales tax exemptions.
“They've got their high-paid lobbyists,'' he said at a press conference. “I'm prepared to take them on, and I hope the Legislature will join with me in standing up for the citizens of Nebraska.''
Sen. Galen Hadley of Kearney, the committee chairman, said Nebraska needs to act with caution on major tax changes. He warned that it would be extremely difficult to reinstate the income tax if dropping it turns out to be a bad decision.
Numerous speakers argued that the proposed change would be a bad choice.
The opponents included the state's largest business groups, agricultural organizations, health care providers, nonprofit groups, college students, airport managers and advocates for children and low-income Nebraskans.
Other groups took an officially neutral position, saying they do not support the bill but want to keep the discussion about the state's tax system going. They included some business groups, trucking interests and the Nebraska State Education Association.
A handful of people spoke in support of the bill, although they said they had qualms about some provisions.
Brad Stevens, Americans for Prosperity's state director, said the proposal would mean an estimated income tax savings of about $1,000 for the average Nebraska family.
But he recommended expanding the sales tax to more services, rather than imposing new sales taxes on manufacturers, as LB 405 would do.
Jeremy Jensen of Lincoln called for the elimination of all sales tax exemptions, arguing that Nebraska's tax system should not pick winners and losers.
He said doing away with the income tax would put another $140 in his pocket every month, enough to make a huge difference in his life.
“This was brave legislation, and I support it fully,” Jensen said.
Jim Cada, speaking for the Nebraska Veterans of Foreign Wars, also backed the bill. Eliminating income taxes would make Social Security and other retirement income free of state taxes.
On the other side of the issue, Renee Fry of the OpenSky Policy Institute, a Lincoln think tank, said there's no evidence that ending state income taxes increases jobs or stems population losses.
Population growth, she said, is fueled by other factors, including weather. She recommended a comprehensive study of the state tax system.
“The real question is what's the rush?” she asked.
Tax policy does force businesses to move, according to Richard Reiser of Werner Trucking.
He said the company moved from Council Bluffs to Sarpy County in 1976 after Iowa rescinded a tax exemption on purchases of trucking equipment.
The company has grown to employ 1,400 workers in Nebraska, and it now runs 7,300 trucks across the country.
Reiser said Heineman's tax plan would mean $6,875 in new sales taxes on the purchase of a truck, which would add “millions” in new tax liabilities for the company.
Earlier Wednesday, Sen. Ernie Chambers of Omaha said Heineman knows his plan will not pass and suggested that the bill must have been offered in jest.
“Do you think he would offer something like this seriously, with no facts, no data?” he asked.
If the plan does make it out of committee, though, Chambers promised he would spend the rest of the session fighting it.
Revenue Committee members took no immediate action on LB 405 Wednesday.
A public hearing on Heineman's more modest proposal, LB 406, will be held at 1:30 p.m. today. LB 406 would eliminate corporate income taxes and reduce taxes on Social Security and other retirement income by ending about $400 million worth of sales tax exemptions.
World-Herald staff writer Paul Hammel contributed to this report.
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