By Deena Winter | Nebraska Watchdog
LINCOLN — The governor has scuttled his ambitious proposal to end Nebraska’s income taxes and instead plans to begin a broader study of tax reform.
Just a couple of weeks ago, Gov. Dave Heineman was defiant in the face of overwhelming opposition to his proposal — proclaiming “we have only just begun to fight” — but Saturday he backed away as it became clear the Revenue Committee might kill the bills.
Omaha Sen. Beau McCoy and Heineman called reporters to inform them of their decision to take a step back. McCoy said he will make a motion in the Revenue Committee, most likely on Wednesday, to kill the two bills that were introduced at the governor’s request.
The more audacious bill, LB405, would have eliminated the income tax by ending $2.4 billion worth of sales tax exemptions. That prompted an outcry from farmers, businesses and nonprofits that would have been affected. The other bill, LB406, was a scaled-down version that would have ended the corporate income tax by scrapping $400 million in sales tax exemptions.
The public hearings on the bills attracted dozens of people from across the state who testified for hours, late into the night in opposition of the plan.
McCoy said he expected outcry.
“We will be paving the way for us to have a much broader discussion,” he said. “We’ve been listening to what Nebraskans have been saying the last two, three weeks that we’ve been talking about tax reform.”
Nebraskans want to talk about tax reform but also want to talk about charging a sales tax on services, property tax reform and reform of economic development incentives, McCoy said.
A performance audit released last week found that Nebraska spends up to $235,000 on business incentives per job created and that the Legislature hasn’t clearly defined its goals for the program or set limits on spending.
“There are a lot of people that say we need to really look at business incentives,” McCoy said. “Are we doing that in the most cost-efficient way?”
Renee Fry, executive director of the OpenSky Policy Institute, a Lincoln think tank that opposed the governor’s tax bills, was surprised but pleased to hear of the governor’s decision.
“The opposition has been pretty powerful and pretty consistent,” she said. “We really believe that the tax code should be modernized. It is out of date. He’s right. That’s great that they’re planning to include tax incentives as part of that broader tax reform.”
Hearings and briefings on tax reform will be held in the Revenue Committee beginning this session, McCoy said.
“We are going to end up with very meaningful tax reform in this state,” he said.
Omaha Sen. Ernie Chambers recently called the bills “peacock bills,” implying the governor didn’t expect them to pass. McCoy disagreed, saying, “We have every intention of getting to meaningful tax reform.”
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