Manufacturers, ag, churches would pay sales tax to eliminate income taxes

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January 18, 2013 - 5:23pm

Everyone from manufacturers to churches in Nebraska would pay sales taxes in order to abolish income taxes, under a proposal detailed by Gov. Dave Heineman Friday.

When he disclosed part of his proposal earlier, Heineman had stressed the upside: doing away with individual and corporate income taxes.

Before he revealed the downside, he once again stressed his goal. "At the end of the day, it’s about job growth and higher paying careers. I mean, I want our kids to be able to have $60,000 a year jobs -- $80,000 a year jobs. $100,000 a year jobs. Those are all middle-class family incomes these days," he said.

To pay the $2.4 billion annual cost of eliminating income taxes, Heineman proposed ending a long list of sales tax exemptions. By far the largest is $1.4 billion worth of components and ingredients used in manufacturing products for ultimate sale at retail.

Omaha Sen. Jeremy Nordquist said that would tend to hurt smaller businesses. "If I’m a multinational corporation and I go chop down a tree, process the lumber and build a shelf with it, I don’t pay any sales tax along that way," he explained. However, he added "If I’m Bob’s shelf shop and I have to go out and buy wood, and pay a sales tax on that wood I buy, my product is now less competitive against the big boy’s. product."

Wendy Boyer of the Greater Omaha Chamber of Commerce said she imagined that organization would support the governor’s proposal, but it would have to look at the details.

Robert Hallstrom, lobbyist for the the National Federation of Independent Business said many small businesses would benefit from individual income taxes going away, but it would be premature to predict what position the group would take.

Many of the sales tax exemptions that would be taken away would affect agriculture, including ag machinery, chemicals, energy, and seeds. Steve Nelson, president of the Nebraska Farm Bureau Federation, said that could cost farm and ranch families an additional $200 million to $300 million a year.

Nelson said while farm income has been high in recent years, the current drought could result in less income while the proposal would raise costs.

Nelson also raised another objection to the proposal, based on something it does not address. "We’re very disappointed that the proposal looks like it does. We need to have property tax as part of the discussion if we’re going to have a broad-based discussion about taxes in the state," he said.

Omaha Sen. Steve Lathrop did introduce a bill Friday that would send state money to the counties to offset property taxes. He also said that should be part of the discussion.

Heineman’s proposal would also end a long list of other sales tax exemptions, including on prescription drugs and medical equipment, college and hospital room rentals, and purchases by exempt organizations, including churches and various nonprofit organizations.

Jim Cunningham of the Nebraska Catholic Conference said the bishops had not yet had a chance to talk about the proposal. But Cunningham expressed concern. "Certainly anything that would have adverse consequences for the ability of religious organizations and their ministries to continue to meet human needs, and address the social and spiritual and material well-being of countless Nebraskans throughout the state, would be a negative consequence," he said.

Cunningham acknowledged the possibility that parishioners left with more discretionary income would contribute more to churches, but called that speculative.

The proposal would keep exemptions on other items, including food and newspapers. Asked why newspapers would keep their exemption, Heinemen joked to a roomful of reporters it was because he loved them so much.

But the governor said he was open to other suggestions on what to exclude or include. "I’m wide open. If people (have) got better ideas on how to do it, send me an email, send me a letter," he said. "We are not tied in to any one exemption except I’ll go back to food. We don’t want to go there."

If Heineman’s proposal had been in effect last year, it would have saved a married couple with income of $50,000 almost $2,000 in income tax.

Heineman also said he would introduce a much smaller proposal, ending exemptions worth only $395 million. He said that would eliminate the corporate income tax and reduce taxes on retirement income.





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