The Revenue Committee heard more than 12 hours of testimony Feb. 6 and 7\u00a0on two bills that would eliminate all \u2014 or a portion of \u2014state income taxes by discontinuing sales tax exemptions. The majority of the testimony was in opposition to the proposals.<\/p>\n
Omaha Sen. Beau McCoy introduced LB405 before the committee Feb. 6 on behalf of Gov. Dave Heineman. He said the bill represents the state\u2019s first fundamental tax reform proposal in almost 50 years.<\/p>\n
\u201cTax reform is really about the next generation of Nebraska\u2019s leaders,\u201d he said. \u201cThey\u2019re only going to be the leaders of tomorrow if we have the great jobs and low taxes to keep them here. This can help propel our economy well into the 21st century.\u201d<\/p>\n
The bill would eliminate income tax on individuals, estates, trusts and corporations. McCoy said the bill addresses income tax, rather than sales tax, because it is a far less stable source of revenue for the state.<\/p>\n
Heineman testified in support of the bill, saying the $5 billion in sales tax exemptions currently in state statute creates a complex and unfair system for the average taxpayer.<\/p>\n
\u201cOur current tax system favors one industry over another; it picks winners and losers,\u201d Heineman said. \u201cOur goal is a better tax policy environment that will create more high paying jobs and more rewarding careers for our sons and daughters.\u201d<\/p>\n
Jim Cada, representing the Nebraska Veterans Council, also testified in support of the bill. He said many retired veterans leave the state for more tax-friendly environments.<\/p>\n
\u201cOur elders do not want to leave their home state,\u201d Cada said. \u201cWe fought for more than mediocrity and I challenge you to move the state forward.\u201d<\/p>\n
OpenSky Institute executive director Renee Fry testified that most scholarly research indicates very little correlation between income taxes and migration from a state.<\/p>\n
\u201cResearch shows taxes have little influence on where people live,\u201d she said. \u201cWhen they do move, scholarly research shows that they do so for new jobs, lower-cost housing, a better climate or to be near family.\u201d<\/p>\n
To replace the estimated $2.4 billion in lost revenue from the elimination of the income tax, LB405 proposes to eliminate nearly half of the state\u2019s current sales tax exemptions.<\/p>\n
Exemptions that would expire under the bill include those on purchases of:
\n\u2022 manufacturing machinery and equipment;
\n\u2022 agricultural machinery and equipment;
\n\u2022 industrial machinery and equipment;
\n\u2022 ingredient or component parts;
\n\u2022 insulin, prescription drugs and durable medical goods;
\n\u2022 rooms used to house students at educational institutions;
\n\u2022 hospital equipment;
\n\u2022 fuel used in irrigation, farming, manufacturing or by hospitals; and
\n\u2022 equipment built in state and sold outside Nebraska.<\/p>\n
Agriculture production specialist Dave Bartels opposed the bill. He said it would unfairly target agriculture, which he called the economic engine that drives the state.<\/p>\n
\u201cIt\u2019s not fair to tax farmers on what they need to produce when they have no control over what they can produce each year,\u201d Bartels said. \u201cThe goal of gaining new businesses in the state will fail to offset the economic damage to agriculture and existing businesses.<\/p>\n
Farmer Gale Lush also opposed the removal of agricultural sales tax exemptions.<\/p>\n
\u201cA tax like the one on inputs would just cause more problems for responsible farmers trying to take care of their debts,\u201d he said.<\/p>\n
Sheri Andrews is president and CEO of Lozier Corporation, which is headquartered in Omaha. She testified in opposition to the elimination of exemptions for inputs and components, saying manufacturers would be unable to pass the tax on and would be forced to absorb it.<\/p>\n
\u201cToday we compete in a worldwide economy and you\u2019ve now made Nebraska manufacturers uncompetitive,\u201d she testified. \u201cOur roots are in the state; we want to stay here and we want to continue to grow here.\u201d<\/p>\n
Representing the University of Nebraska at Lincoln Residence Hall Association, Meg Brannen opposed the elimination of sales tax exemptions for the cost of renting dorm rooms. She said the loss of the exemption would lead to an additional cost of $667 annually for students living in dorms.<\/p>\n
\u201cThis translates to an additional 92 hours that I have to spend working,\u201d Brannen said. \u201cThis would make living on campus out of reach for me. The added costs means commuting to school and giving up the things I really love about it.\u201d<\/p>\n
John Cederberg, representing the Lincoln Chamber of Commerce and the Nebraska Chamber of Commerce, opposed the bill. He said he supported the intent of the LB405, but could not support the bill.<\/p>\n
\u201cIf we can get to a consensus bill that truly moves Nebraska forward and doesn\u2019t jeopardize manufacturing, agriculture and health care, then we should do it,\u201d Cederberg said. \u201cWe would like to be part of the conversation to create a usable solution, but this is not it.\u201d<\/p>\n
The Greater Omaha Chamber of Commerce testified in a neutral capacity. President and CEO David Brown said the chamber encourages a discussion of tax reform, but could not support the proposal in its current form.<\/p>\n
\u201cThe negative effects this would have on manufacturers, hospitals, agricultural producers and charitable institutions are significant,\u201d he said. \u201cWe believe the elimination of the sales tax exemptions proposed would do more harm than good.\u201d<\/p>\n
Jason Hayes, representing the Nebraska State Education Association, also testified in a neutral capacity. He said eliminating the income tax would lead to a loss of $81 million in state funding to schools.<\/p>\n
\u201cWe believe there is a need to understand a thorough study of Nebraska\u2019s tax policy,\u201d Hayes said, \u201cBut we are concerned as to whether the bill will truly be revenue neutral.\u201d<\/p>\n