In final year, Nebraska governor will push income tax cut

December 3, 2013
Nebraska Gov. Dave Heineman (Courtesy Nebraska Governor's office)
Nebraska Gov. Dave Heineman (Nebraska Governor’s office)

Nebraska Gov. Dave Heineman (R) will spend his last year in office pushing to reduce his state’s income and property taxes, a year after his effort to eliminate the personal income tax came up short.

“The biggest issue, the most important issue in this legislative session is going to be tax relief. We are going to work very hard to create a better tax environment out here, particularly as we try to recruit higher paying  jobs,” Heineman said in an interview Monday. “We look good in all your general business rankings, but the one area where we still need improvement is the tax situation.”

Heineman said he would push the state legislature to cut the top personal income tax rate from 6.84 percent to below 6 percent. A large percentage of Nebraska families qualify for that top rate; the rate kicks in for income over $54,000 a year for a married couple filing jointly, and the average household income stands at $50,695, according to the Census Bureau.

“That’s just not competitive with our neighboring states, not competitive really in today’s modern economy,” Heineman said.

States that rely most heavily on income tax revenue:

(Sources: The Tax Foundation, U.S. Census Bureau)

Heineman will also push to lower the property tax burden, which his state’s agriculture industry complains places too big a burden on their businesses. While property tax rates are largely the domain of local jurisdictions, the state controls property valuation.

Heineman said the legislature could reduce the valuation of agricultural land, currently assessed at 75 percent of its actual value, to as low as 65 percent. Property tax relief can also come from a special fund that gives direct reimbursements to property owners.

Both tax cuts would be paid for by the state budget surplus, which a state economic board estimated at $81 million earlier this year.

Any tax cutting proposals would have to make it through the state Senate, which is the only unicameral, officially nonpartisan legislature in the country. A Heineman-backed proposal to eliminate the state income tax failed to advance this year, though the conservative makeup of the legislature may make them open to tax cuts next time around.

States that rely most heavily on sales tax revenue:

(Source: The Tax Foundation, U.S. Census Bureau)

A special legislative Tax Modernization Committee has held five public hearings around the state this year to solicit input.

“What I heard as a constant theme around the state is that taxes are too high, and particularly property taxes,” said Sen. Beau McCoy, a member of the special committee and the Revenue Committee who represents a district just west of Omaha. “When you have high property taxes, it puts a burden on our farmers and ranchers across the state that are a huge part of our economy.”

Nebraska relies on income taxes for 41.5 percent of its revenue, according to Census Bureau statistics and the Tax Foundation. It gets about a third of its revenue from sales taxes.

Heineman said the legislature would continue to debate expanding Medicaid, which he opposes. The legislature debated a Medicaid expansion bill this year, but it failed. Like many other Republican governors, Heineman says he doesn’t trust the federal government to provide the 90 percent funding promised after the first three years.

“If you look at the environment in which this rocky, disastrous rollout of ObamaCare is happening, now is not the time” to expand Medicaid, Heineman said. “There’s so much confusion and uncertainty in the health-care market right now. To  expand Medicaid in that market just doesn’t make sense.”

Heineman, who assumed office in January 2005 when his predecessor Mike Johanns resigned to become U.S. secretary of agriculture, is term-limited after winning election easily in 2006 and 2010. A crowded field is shaping up to replace him; Nebraska hasn’t elected a Democratic governor since Ben Nelson won reelection in 1994.

Reid Wilson covers state politics and policy for the Washington Post's GovBeat blog. He's a former editor in chief of The Hotline, the premier tip sheet on campaigns and elections, and he's a complete political junkie.
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