LINCOLN — Nebraska's great tax debate of 2013 has morphed into a discussion over how best to study the issue for next year.
On Tuesday, the likely vehicle for that study drew a wave of support from several groups, along with the Legislature's top tax lawmaker, State Sen. Galen Hadley of Kearney, chairman of the Revenue Committee.
Legislative Bill 613, introduced by Columbus Sen. Paul Schumacher, would create a special legislative task force to study state tax policy over the next nine months.
The “Tax Modernization Commission” would then suggest ways to improve the state's tax system with a goal of making it simpler, fairer and more competitive with other states.
That means a look at shifting the tax load so that property taxes or income taxes could be reduced, thus making Nebraska a more attractive place to live and create jobs, the lawmaker said.
Tax incentives as a means of spurring economic development will also be probed, as well as whether the state gives away too many sales tax exemptions, which now total nearly $5 billion a year in untaxed purchases by farmers, manufacturers and other organizations.
Hadley said Tuesday that he wants the Revenue Committee to lead the study because it's charged with reviewing state tax policies. He added that the goal will be tax fairness and not an overall tax reduction, which some groups have said can be accomplished by cutting state spending.
“The committee is not out to lower everyone's taxes. That just isn't going to happen,” he said. “I see this more as an equity committee: What taxes are best for Nebraskans? What is the most equitable way for the average citizen in Nebraska to support their government?”
The tax debate was launched in January when Gov. Dave Heineman called on the Legislature this year to enact sweeping changes that would eliminate state income taxes and replace that revenue by ending several sales tax exemptions that benefit businesses, farmers, hospitals, churches and other nonprofit groups.
That proposal, and a less ambitious one that would have eliminated corporate income taxes and reduced taxes on Social Security income and other pensions, were to be “revenue neutral” so that overall state tax revenues would not be not increased or decreased.
But the governor's two bills sparked a deluge of criticism from a wide range of groups who said the tax shifts — creating new tax bills on previously exempt purchases — would push jobs out of the state, increase taxes on the poor and make Nebraska's farm and manufacturing goods uncompetitive.
Heineman on Saturday asked that the bills be withdrawn, though lawmakers say his proposals have spiked interest in studying the state's tax system to see if it's adequate for the 21st century.
“There's an interest now,” Hadley said. “We want to strike now while (the topic) is hot.”
So the issue has shifted to how best to conduct such a study so that bills could be introduced and debated next year.
The tax commission created under by LB 613 could hire “academic tax” experts to provide advice. The body also would be required to hold a “tax summit” and public hearings across the state to solicit input. Then, it would issue a report by Dec. 15 that might include proposed bills to reform the state tax system.
One issue yet to be worked out is which state senators would serve on the commission.
Hadley said he is drafting an amendment to LB 613 so that all eight senators on the Revenue Committee would be members.
Schumacher's original bill called for only two members of the Revenue Committee serving on the commission along with representatives of the Appropriations, Education and Health and Human Services Committees and the speaker of the Legislature. But the senator said Tuesday that he's open to changes.
The Legislature's Executive Board, which took testimony on LB 613, took no action on the proposal after the public hearing. Lexington Sen. John Wightman, the committee's chairman, said he will wait for Hadley's proposed amendment before the committee considers whether to advance the bill.
Members of the committee, however, emphasized that creating a task force to study taxes was not a way to sweep the issue under the rug but a means toward concrete changes.
Among the groups speaking in support of LB 613 on Tuesday were the Nebraska Hospital Association, the Nebraska State Education Association, the Appleseed Center for Law in the Public Interest and the Center for Rural Affairs.
Two lawmakers who co-sponsored the governor's doomed tax proposals said Tuesday that they supported a study, but each had suggestions.
Omaha Sen. Brad Ashford said he believes a study would be most effective if it had a narrower focus on expanding the sales tax base, via new taxes on services or eliminating tax exemptions, to allow other taxes to be reduced. He also suggested that state business groups have a representative in the study group.
Sen. Beau McCoy of Omaha said the tax debate is broader than just sales taxes and should include a look at economic incentives and high property taxes. He added that he hopes the Revenue Committee, of which he is a member, gets started as soon as possible on the study.
“This is important enough, we should start right away,” McCoy said.
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