A new study by a group critical of Nebraska Governor Dave Heineman’s tax proposal says it would raise taxes on the 80 percent of Nebraskans who make less than 91 thousand dollars a year.
The study was done for the Open Sky Policy Institute, which describes itself as impartial and nonpartisan. It looks at the effects of Gov. Dave Heineman’s proposal, LB405, to abolish Nebraska’s individual and corporate income taxes. Heineman would replace the lost revenue by ending $2.4 billion worth of sales tax exemptions on everything from parts used in manufacturing to prescription drugs.
Open Sky Executive Director Renee Fry says the results of the study make sense. "When you expand a sales tax, you’re going to impact middle-income and lower-income people – families – greater than it does higher—income because you’re shifting from a progressive tax to a regressive tax," she said.
Fry said the study was conducted for Open Sky by the Washington, DC-based Institute on Taxation and Economic Policy. It says families with incomes below $91,000 would pay more. For example, those with incomes between $21,000 and $37,000 would pay an average of $1,006 more, while those with incomes above $91,000 would pay $4,851 less.
Meg Wiehe of the Institute on Taxation and Economic Policy said it used a model that compared sales taxes paid at various income levels to income taxes at those levels.
Wiehe acknowledged many of the sales tax exemptions Heineman wants to abolish are given to businesses, not consumers. But she said that doesn’t neccesarily mean most higher costs would be passed on to out-of-state consumers of Nebraska products.
"There is a cascading effect that happens. So (for) some of those inputs – the manufacturing inputs or the agricultural inputs – the next purchase may still be in Nebraska before the final product is made that goes out of state," she said.
Wiehe estimated 1/3 or more of the sales tax burden would be paid by out-of-state purchasers, but said the study still found that lower-income Nebraskans would have to pay more on balance.
A spokeswoman for Gov. Dave Heineman said he had no comment on the study. A spokeswoman for the Department of Revenue said the department doesn’t know what assumptions were used in the study, and therefore could not comment.
Attempts to get response from Omaha Sens. Beau McCoy and Brad Ashford, sponsors of the governor’s bill, were not immediately successful. But McCoy did respond when asked about an earlier Open Sky study that predicted Heineman’s plan would produce budget shortfalls because sales taxes grow more slowly than income taxes.
McCoy said he needed more details to evaluate that study. And he said he wanted information from other groups as well when the Revenue Committee holds a public hearing on the proposal next Wednesday. "I look forward to a lot of feedback from small business people across Nebraska, individual citizens across Nebraska, bigger businesses, folks from the agriculture community, all aspects of our industries and businesses and families that feed into the revenue that comes into the state of Nebraska that makes up how we go about doing business in state government," McCoy said.
Editor’s Note: You can watch live coverage of the Revenue Committee hearing on the governor’s tax proposal Wednesday at 1:30 on NET2, or on the web at netnebraska.org.