By Deena Winter | Nebraska Watchdog
LINCOLN – As Gov. Dave Heineman considers ways to reduce or eliminate state income taxes, forces are aligning in opposition to any move to pay for his cuts by taxing groceries, medicine or medical equipment in Nebraska.
Heineman has said he’s looking at reducing income taxes for small businesses and possibly eliminating state income taxes, and speculation is mounting that he might try to repeal the sales tax exemption on groceries or other goods and services.
Omaha Sen. Steve Lathrop said he’s heard Heineman is looking at income tax cuts in exchange for eliminating certain sales tax exemptions — or all of them.
“I’d have to see the proposal (but) I think there’s a problem if we start imposing a sales tax on food and health care,” said Lathrop, a Democrat considering running for governor in 2014. “That’s the kind of tax shift that isn’t going to work.”
Omaha Sen. Jeremy Nordquist said if the governor proposes taxing groceries or health care so wealthy Nebraskans don’t have to pay income taxes, he’ll “fight him every step of the way.”
“Working families cannot afford a radical tax shift like the governor is floating — a tax shift that will benefit high-income earners and make families who are struggling in this economy pay more at the grocery store or when they need medical care,” said Nordquist, who is also a Democrat. “Working, middle-class Nebraska families lose under this tax scheme.”
Last year, Nordquist fought against Heineman’s tax cut package until he targeted it more toward the middle class, and said he’s willing to work with the governor again to find ways to reduce the tax burden on middle-class families. Nordquist intends to introduce a bill to phase out taxes on Social Security benefits to make Nebraska’s tax climate more friendly to retirees.
But as Heineman looks for ways to make Nebraska’s tax climate more competitive, two unions and two special interest groups have already come out against any move to eliminate the state income tax, noting that income taxes account for about half the state’s general fund revenue.
“This idea would have very dangerous effects on the Nebraska economy and put at risk all of the basic, needed public services for which the state is responsible — both today and for future generations,” wrote the heads of the Nebraska State Education Association, Voices for Children of Nebraska, Center for People in Need and Nebraska Association of Public Employees/American Federation of State, County and Municipal Employees.
“It even could mean eliminating sales tax exemptions on groceries, making it even more expensive for working families — with their budgets already stretched to the breaking point — to put food on the table,” they wrote.
Carolyn Rooker, executive director of Voices for Children, said to eliminate the income tax, things such as education or health care would have to be drastically cut.
“Since lower-income families spend a larger share of their income on basic needs, like food, raising taxes on those things will impact low-income families more than others,” she said. “We would hate to see Nebraska increase taxes on families who can least afford to pay.”
The governor’s office declined to comment for this story, but it’s clear Heineman would like to keep up with the neighbors such as Kansas — which earlier this year lowered income tax rates and eliminated its tax on income for many businesses. Now some Missouri Republican lawmakers are talking about cutting business taxes to keep up with the Kansans. However, the Kansas income tax cut is expected to create a $4.5 billion budget deficit over six years, which that state will have to figure out how to erase.
Lathrop doesn’t want to see an income tax cut that puts a budgetary burden on counties, requiring them to increase their property taxes.
“I’m going to be vigilant to make sure what policies he’s promoting or tax cuts he’s offering don’t have the effect of raising property taxes,” Lathrop said.
— Edited by John Trump at [email protected]
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