Heineman tax plan gets mixed reviews

LINCOLN, Nebraska -- In its simplest form, Governor Dave Heineman has proposed two bills to eliminate state income taxes and make up the lost revenue by eliminating $2.4 billion in sales tax exemptions. Proponents told the Legislature's Revenue Committee that such a bold move would result in job growth. Opponents say there is no evidence, not even anecdotal evidence, that such a move results in job growth.

The idea comes from Americans for Prosperity and several of Heineman's Republican colleagues who are governors of other states with similar proposals. The major thrust comes from the privately funded Tax Foundation, a self-proclaimed conservative think tank. That group's fiscal analyst Joseph Henchman says studies show that taxing consumption or sales, instead of income, leads to more economic growth.

Conversely, the Nebraska-grown think tank, Open Sky, says there is no evidence that such a plan works. They note that those involved with agriculture, manufacturing, hospitals and university students would wind up falling victim to the removal of exemptions that would tax them more heavily.

After more than nine hours of testimony, and 50 opponents to the plan, the Governor has declared himself open to all tax reform options...as long as tax reform can happen this session and doesn't involve a scheme to raise money just to spend on favorite programs.

Some question the urgency from the term-limited governor who only has two years left in office. Others applaud him for at least getting the discussion started. Revenue Committee Chairman Sen. Galen Hadley of Kearney said his committee has two major Heineman options (LBs 405 and 406) to consider and must decide whether it (tax reform) can be done this year.

Major Nebraska corporations have said they would reassess expansion plans in Nebraska if the Heineman bills pass. Three major chambers of commerce (Lincoln, Omaha and the Nebraska State Chamber) said they don't support the bills because of the negative impact on industry by the elimination of sales tax exemptions on machinery and the manufacturing process. The same goes for production agriculture, which could lose sales tax exemptions on equipment, water and the energy to apply that water to crops. Hospital and dormitory room costs would also lose sales tax exemptions.

Saying he couldn't testify at the hearings, veteran Omaha lawmaker Ernie Chambers cautioned his colleagues that he wasn't out of the loop on the topic. He said if the bill makes it to the floor for debate by the full Legislature, he would tie up the rest of the session rather than see it advance. If anything has been made clear by his 38 years in the Legislature, it is the knowledge that he does have the ability to do just that.