The Legislature’s Tax Modernization Committee released its final report Friday without recommending any dramatic changes in the state’s tax structure. Meanwhile, recommendations for new funding for water projects are being finalized.
The Tax Modernization Committee’s study grew out of Gov. Dave Heineman’s proposal earlier this year to abolish state income taxes. Heineman proposed replacing lost revenues by ending sales tax exemptions. That drew strong opposition from industries that get those exemptions, including manufacturing and agriculture.
In its report released today, the committee makes no such sweeping recommendations. Sen. Galen Hadley, the committee chairman, said it was clear from public hearings that Nebraskans are most concerned about high local property taxes. But he said it would be expensive for Nebraska to increase state spending to offset local property taxes and lower them to the regional average. “To lower property taxes and shift to other taxes, it would be between 200 and 300 million dollars a year just to reach average in other states,” Hadley said.
That could require a 5 to 7.5 percent increase in state spending, currently about $4 billion a year. While the committee did recommend increasing state aid to schools to offset property taxes, it included no specific number in its recommendation.
Sen. Heath Mello, chairman of the Appropriations Committee, cautioned against using the state’s cash reserve, currently projected to reach $679 million by next July. “For us to get rid of our savings account now to give us short term tax relief, only then to have to raise property taxes, income or sales taxes three or four years from now, is not wise fiscal policy and it’s not good public policy,” Mello said.
The committee made other recommendations, also without including any specifics or costs. They include reducing the percentage of ag land value that is taxed; raising homestead exemptions for elderly and disabled homeowners, adjusting income tax brackets to account for inflation, exempting more Social Security benefits from taxation, and giving low-income households a credit against taxes on utilities.
Hadley said it will be up to individual senators, or the Revenue Committee, which he chairs, to introduce legislation to make those changes.
In one of its only specific recommendations, the committee called for reducing the tax on business incomes between $100,000 and $250,000 from almost eight percent to five and a half percent, a change Hadley said would cost less than $5 million.
Only 10 out of 14 members of the Tax Modernization Committee signed the final report. Of the four who did not sign, three are running for statewide office next year: Sens. Charlie Janssen of Fremont and Beau McCoy of Omaha are running for the Republican gubernatorial nomination; Sen. Pete Pirsch of Omaha is running for the GOP nomination for state auditor. Sen. Ken Schilz of Ogallala was the fourth non-signer.
Janssen said he disagreed with the committee’s approach. “Upon our first meeting, it was laid out that we’re not going to talk about spending; we’re just going to talk about tax shifts. I was not on board with that mission from the beginning,” he said.
Janssen said he would offer his own plan before the legislative session begins in January. So did McCoy, who said he objected to committee recommendations including not lowering income taxes and considering taxing consumer services.
The other two senators who did not sign the report could not immediately be reached. Sue Roush, a spokeswoman for Gov. Heineman said only “The Governor supports a balanced plan of property tax relief and income tax relief.”
Meanwhile, a task force studying how to fund water projects in the state is on the verge of approving recommendations that would raise about $50 million a year.
The recommendations include earmarking 1/8 of a cent, out of the state’s current 5 1/2 cents on-the-dollar sales tax rate, to be used for water projects. That money currently goes to pay for everything from schools to health care.
There could also be additional taxes on bottled water, soda pop, ethanol, and fertilizer. And severance taxes could be increased on oil, gas and uranium, and instituted on sand, gravel, and niobium.
Niobium is a rare earth mineral found in southeast Nebraska. A Canadian company is currently exploring the commercial feasibility of mining it there.
The Water Funding Task Force is scheduled to make its final recommendations to the Legislature by December 20th.
Correction: Gov. Heineman unveiled his proposal to abolish state income taxes in January, 2013, not last year.