Heineman's tax cut plan targets income, sales, property
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By NATE JENKINS / Lincoln Journal Star
Gov. Dave Heineman unveiled a three-tiered plan to cut taxes Monday that is expected to be at the core of his legislative agenda and campaign for governor.
Income, sales and property taxes would all be reduced under the plan that would result in taxpayer savings of about $420 million over three years, but still keep the state’s rainy-day savings account in robust shape, he said.
“Nebraska taxpayers need tax relief and I believe this is a responsible way to provide it,” Heineman said. The governor had been touting tax cuts for weeks, building anticipation over what his proposal would entail.
The income-tax portion of Heineman’s strategy would roll back tax rates to 1997 levels, resulting in about a 3 percent reduction. That would save a family of four earning $55,000 a total of about $120 over three years.
State senators didn’t immediately stamp it with their approval, saying they needed to comb through its details first. They may not have any to scrutinize until next month, when Heineman plans to release them as part of his budget recommendation.
The two candidates trying to unseat Heineman as governor, meanwhile, criticized the plan.
While a “step in the right direction,” the cuts should be deeper and tied to a plan to reduce state spending, said U.S. Rep. Tom Osborne.
“I’d hope we could do better than that,” Osborne said. “Not addressed here are things that could be done to significantly decrease state spending."
By Heineman's estimate, a family of four that earns $55,000 and owns a $200,000 house would save about $120 a year under his plan.
Strong state coffers — a forecasting board predicted in October the state would get an additional $262 million over the next two years — is expected to make many senators willing to consider cuts.
“I’m very, very willing to have a tax cut” but want to make sure the state is able to pay for important items such as renovating buildings at the University of Nebraska, said North Platte Sen. Don Pederson, chairman of the Legislature’s budget-writing Appropriations Committee.
The university has asked for $20 million over two years to help pay for bonds that would be used to fix up 15 buildings.
Said Pederson of savings to families under the income-tax portion of Heineman's plan: “That doesn’t really amount to very many dollars for anybody.”
Heineman said he contacted all of the state’s 49 senators over the last couple of weeks to talk about the tax-relief package.
“This plan has a very good chance of passing the Legislature,” Heineman said.
In addition to reducing income taxes, the plan calls for repealing the state’s sales tax on construction and home-improvement labor, which would save taxpayers an estimated $99 million from fiscal years 2007-2009. The last piece would ratchet down the property-tax lid for schools from the current $1.05 per $100 of assessed valuation to $1 by fiscal year 2007-2008.
Estimates show that for every $100,000 of assessed valuation, taxpayers would save $125 over three years with the lid-reduction plan, according to Heineman’s office.
The lid already is scheduled to drop to $1 without the governor's proposal, just later — in fiscal year 2008-2009.
To make up for school revenue lost to a lower lid, the state would give schools and extra $174 million in state aid, Heineman said.
“This is an investment in property tax relief, it’s an investment in our children,” he said.
Heineman attempted to frame expected disagreement over his plan as one between special interest groups and taxpayers, saying that special interests are already lining up for additional dollars coming into the state.
He also applied some indirect pressure on lawmakers by suggesting that to keep faith with taxpayers they need to support his plan. State senators raised taxes in 2003 to remedy a budget crisis, but indicated they would reduce them once the economy improved.
But senators may also have other things weighing on their minds as they consider tax cuts this session, a member of the Legislature’s Revenue Committee said.
Fresh in the memories of many, said Sen. Matt Connealy of Decatur, is the budget crisis of a few years ago exacerbated by the tax cuts of 1997. Many of the 20 term-limited state senators entering their final legislative session may be reluctant for their Capitol send-off to include a tax cut with unknown consequences, he said.
“The Legislature will be ... very cautious,” said Connealy. “We’ve gone through the tough times and there’s a sense that we want to try and leave the state better than in the past when we had drastic tax cuts and campaign pitches.”
Sen. Abbie Cornett of Bellevue, a member of the Revenue Committee, agreed senators will be cautious with tax cuts to avoid a “yo-yo situation where we cut taxes and then oh-my-God we have to raise them again.” But a number of senators are working on tax-cut proposals, she said, guaranteeing that Heineman’s plan won't be the only one.
Omaha businessman Dave Nabity, a Republican candidate for governor, panned the Heineman plan as “form but not substance” that relies too heavily on faith that revenues will continue to grow. While presenting his plan Monday, Heineman said the job-creation package he approved last legislative session will help grow the economy and make the tax cuts sustainable.
Nabity wants to “scrub” state government of waste and has said he would cut income taxes in half and get rid of the estate tax, among other things.
“How about 40 bucks a year over three years?” Nabity said of estimated savings for a family of four earning $55,000 under Heineman’s plan. “Whoopty-aye-yay.”
Reach Nate Jenkins at 473-7223 or njenkins@journalstar.com
Highlights of Heineman’s tax cut plan
INCOME TAX:
— Reduce the state income tax to its 1997 level.
— That would equate to about a 3 percent reduction.
— Heineman estimates it would save the average family of four earning $55,000 about $120 over three years.
SALES TAXES:
— Eliminate the 5.5 percent state sales tax on home construction and home repair labor.
— Estimated savings of $99 million from July 1, 2007, through June 30, 2009.
— Those services were made subject to sales tax in 2003.
PROPERTY TAXES:
— Lower the current lid of $1.05 per $100 of assessed property value for schools to $1.025 next fiscal year and $1 the following year.
— Current law doesn’t call for the drop to $1 until the 2008-2009 fiscal year.
— The state would contribute an additional $174 million to make up for the drop in local tax revenue for schools.
— Heineman estimates that a homeowner would save $125 over a three-year period for every $100,000 in property value.
Source: Gov. Dave Heineman
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