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Nebraska lawmakers to suggest tax-reform proposals

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Posted: Sunday, September 1, 2013 10:24 pm

LINCOLN, Neb. (AP) — Nebraska lawmakers have stressed the importance of public input as they look to make changes to the state tax system, but they're also trying to avoid a free-for-all with conflicting special interests.

The Legislature's Tax Modernization Committee has drafted several proposals to change the state's income, property, and sales and use taxes. The panel's chairman, Sen. Galen Hadley, said the suggestions are intended to keep the public input focused on ways to make Nebraska's tax system more equitable and competitive. Hadley has said this summer's hearings — part of a statewide tax study — won't lead to across-the-board tax cuts.

The 14-member committee will hold hearings over the next two months in Scottsbluff, North Platte, Norfolk, Omaha and Lincoln, before releasing its recommendations in December. A series of February hearings over Gov. Dave Heineman's income tax plan dragged on for hours, with strong opposition from business and farm groups, nonprofits and others.

"What we're concerned about is that there will be a jumble of answers, and we'll just have everybody come up and say, 'We want to pay less in taxes,'" Hadley said. "We want (the discussion) focused. And I guess we'd like to get the message out that we have done some work. These aren't all of the options. But they're some of the potential options."

Tentative ideas include income tax credits to offset property taxes on agricultural land and business items. Reducing the taxable value of farm- and ranchland is another option, as is an increase in state aid to schools, counties, cities, and community colleges to reduce property taxes. Lawmakers are also looking at expanding the state sales tax to cover labor services, such as construction contractors, and personal services, such as hair salons. For income taxes, the ideas include reducing tax brackets and adjusting tax rates to provide relief.

Lawmakers have agreed not to eliminate sales-tax exemptions on food and health care services, unless the public voices strong support. Hadley said taxing food and health care is a political "lightning rod" that would likely receive little support in the Legislature. Lawmakers also are unlikely to approve a sweeping elimination of Nebraska's income tax, as Heineman proposed in January.

The goal of the effort is to produce recommendations to make the tax system fairer, simpler and more competitive, while maintaining essential state services. The panel is looking at what areas of the tax system, if any, have fallen out of sync with Nebraska's economy.

"The charge of this committee is not to lower the overall revenues in Nebraska — nor is it to increase the overall revenues in Nebraska," said Hadley, of Kearney. "It's to make sure that our system is equitable to the citizens of Nebraska. That means that if we feel it's inequitable in area because we're taxing too much, then we might have to look at other areas that we may feel we're not taxing as much as we should."

The committee was formed after Heineman withdrew his plan to eliminate, or at least reduce, the state's income tax. The plan faced resistance from many business and agriculture groups, churches, and hospitals, but prompted a broader discussion about the state tax climate. Nebraska's last major tax overhaul took place in the 1960s, and some lawmakers question whether the tax system meets the needs of a state that now relies less on manufacturing and more on services.

Nebraska allows sales tax exemptions on 84 different goods and services, from newspapers to airplane fuel to bull semen. Some lawmakers on the tax-focused Revenue Committee have said eliminating the tax breaks and expanding the sales-tax base would allow for reforms elsewhere, such as property tax reductions.

© 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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