LINCOLN — Two leading state lawmakers are criticizing a proposed “working group” to revise Gov. Dave Heineman’s tax plan as a poor and hasty way to deal with complicated policy.
The criticism comes as supporters of Heineman’s proposal floated a new compromise tax plan Sunday.
Senators critical of the working group — Steve Lathrop and Heath Mello, both of Omaha — said revamping broad swaths of tax policy requires a year of study, not the couple of months envisioned under the plan. “This requires a process that is more thoughtful than trying to put something together in a month or two,” said Lathrop, who has mediated several controversial issues in the Legislature.
He called the governor’s current plans “punitive toward agriculture and manufacturing, the sick and the nonprofit sector of our economy.”
Mello, chairman of the budget-writing Appropriations Committee, said uncertainty created by the governor’s proposals, as well as their resulting loss of revenue, is complicating efforts to draw up a two-year budget. Businesses also are rethinking new investments, he said.
“I don’t see how trying to rush anything this session benefits the state right now,” said Mello, who like Lathrop supports a yearlong study of tax policy followed by a possible debate next year.
The idea of a working group to revamp the governor’s tax proposal by April 1 was floated Friday after Heineman’s original plan drew an avalanche of criticism from business, agriculture and nonprofit groups during public hearings last week.
Heineman proposes eliminating state personal income and corporate income taxes by doing away with nearly 30 sales tax exemptions now enjoyed by manufacturers, farmers, hospitals, churches and other nonprofit groups. The governor also introduced a second, less ambitious plan to eliminate corporate income taxes and to reduce taxes on retirement pension income.
A co-sponsor of the governor’s bill, Omaha Sen. Brad Ashford, said Sunday that Lathrop and Mello might be right about waiting until next year, but that’s a decision for the Legislature’s Revenue Committee, which handles tax bills.
On Sunday, Ashford met with representatives of the Omaha Chamber of Commerce to unveil details of a compromise tax proposal.
Ashford, who is a candidate for Omaha mayor, said the new plan would reduce state income taxes by about $1 billion by reducing the top rate on individual and corporate income taxes to 3 percent. The highest individual income tax rate (over $54,000 in taxable income for a couple) is 6.84 percent, and the top corporation income tax rate (on incomes over $100,000) is 7.81 percent.
The major difference between the new compromise plan and the governor’s Legislative Bill 405 is that manufacturing inputs and ingredients — such as the steel used to make mufflers or the corn used to make corn flakes — would continue to be tax-exempt.
Taxing such inputs prompted the harshest criticism from business and manufacturing groups last week. They said such a tax was a “job killer” that would force jobs and manufacturers out of Nebraska.
Ashford said Sunday that he believes the total elimination of state income taxes now is off the table, because it can’t be achieved without ending the $1.4 billion tax exemption for manufacturing inputs.
“We need a restart of this discussion,” he said, “and 3 percent is a much better place to start than zero.”
Asked about the compromise Sunday evening, Lathrop said, “What we’re doing now is looking for a political solution for a proposal that was never well thought out.”
“I would love to pay less income tax,” he said. “But if we’re going to take a look at changing our state’s tax structure, it ought to be done by listening to people who have experience and expertise in developing policies that grow the economy.”
Lathrop, a Democrat who is considering running for U.S. Congress or governor in 2014, and Mello are among the co-sponsors of a bill that would create a State Tax Modernization Commission. The commission would study the state tax structure and recommend improvements by December.
The commission would include state lawmakers, state budget and tax officials and two “academic tax experts” selected by the Legislature’s Executive Board.
The proposal, Legislative Bill 613, was introduced by Sen. Paul Schumacher of Columbus, a member of the Revenue Committee. A public hearing on LB 613 is scheduled for Feb. 19.
The chairman of the Revenue Committee, Sen. Galen Hadley of Kearney, said the committee plans to begin discussing this week whether it should forge ahead with a major tax debate this year, or support a longer study such as that envisioned in LB 613.
Hadley said Sunday that he does wonder whether a complex overhaul of state taxes can be handled this year.
“That’s quite an undertaking,” he said. “People have criticized us for not doing a thorough review. The question is what is the best approach for a thorough review.”
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