LINCOLN — An Omaha-based think tank put some meat Thursday on a thin tax relief debate, releasing a plan it said would turn Nebraska's “middle of the pack” tax system into one that would inspire economic growth.
The Platte Institute for Economic Research provided the most detailed plan to date on changes to state taxes, calling for income tax cuts, tougher limits on property taxes and taxation of more services.
The group's report presented three options.
One would swap lower individual and corporate income taxes with about $126 million in new sales taxes on currently exempt services such as automobile repairs, haircuts, veterinary bills, funerals and dues for clubs, organizations and labor unions.
In the past, the Platte Institute has called for reduced government spending to finance tax cuts. But its executive director said the organization wanted to provide an array of options, including one that would be nearly revenue-neutral and would require only $4 million in spending cuts.
“We wanted a reasonable plan that will have the greatest chance to pass, with income-tax relief the primary goal,” said executive director Jim Vokal, a former Omaha city councilman.
The report comes as the Nebraska Legislature is midway through gathering public comment on how to make the state tax system more equitable and more reflective of today's economy. Recommendations from lawmakers aren't due until December.
Gov. Dave Heineman weighed in earlier this week, calling for cuts in both state income taxes and local property taxes. But he said it was too soon to offer details.
Citizens at the hearings held by the Legislature's Tax Modernization Committee have mostly called for property tax reductions, as has the Lincoln-based Open Sky Policy Institute, but few specifics have been suggested.
The Nebraska Chamber of Commerce and Industry has passed out some tax goals that look similar to the Platte Institute's plan, but Thursday's proposal went further, suggesting exactly which sales tax exemptions should go away to fund a tax shift.
Three state senators who attended a press conference to release the report balked when asked whether they supported enacting new sales taxes to finance a cut in income taxes.
State Sen. Charlie Janssen of Fremont, a Republican candidate for governor, and Sen. Pete Pirsch of Omaha, who is expected to announce his GOP candidacy for state auditor, both said they want tax relief, not new taxes. Sen. Bill Kintner of Papillion agreed, but said lawmakers will take a look at the report.
“This is needed,” Kintner said, holding up the plan. “It's a framework for where we need to go.”
The report was written by Joe Henchman and Scott Drenkard of the Tax Foundation and based on meetings across the state. The Tax Foundation has ranked Nebraska's tax climate for business as No. 31 in the country, which Heineman has called “mediocre.”
The Platte Institute was founded by Omaha businessman Pete Ricketts, also a GOP candidate for governor. Ricketts has resigned as president of the group to devote time to the governor's race. He did not attend the press conference.
The two more ambitious tax-cutting options would enact new sales taxes on an array of professional services — such as legal, financial and medical services — to raise more than $1 billion and allow income taxes to be slashed or eliminated. Heineman proposed a somewhat similar tax swap earlier this year but met a deluge of opposition.
The Platte Institute's report concluded that despite the state's low unemployment rate and high rankings for quality of life, a more “equitable and simplified” tax system would attract more jobs to the state and overcome the perception that Nebraska is not an “exciting and productive” place to live and work.
Vokal said the current tax system was “middle of the pack,” and even worse when compared with neighboring states.
The least ambitious plan would:
» Cut the state's top personal income and corporate income tax rates to 5.5 percent to make Nebraska more competitive with neighboring states. Right now, Nebraska's top personal income tax rate of 6.84 percent is the highest among neighboring states except for Iowa.
The report said that Nebraska was “extreme” in its awarding of tax incentives for businesses and that cutting the overall tax rate would be fairer, helping existing businesses as well as new ones.
» Double the earned income tax credit and increase the personal exemption, in an attempt to ensure that the tax burden is not shifted onto lower-income taxpayers.
» Strengthen limits on local property taxes. Current property tax lids are too easy to exceed, Vokal said.
» Expand the sales tax base by taxing currently exempt services such as auto repairs, beauty shop visits, and funeral and burial services. Caskets and headstones are already taxed.
The tax on funerals came with some irony. The Platte Institute, in past reports, has called for an end to inheritance taxes in Nebraska, or as some people call them, “death taxes.”
Dropping inheritance taxes was not included in the report, but Vokal said the Platte Institute still supports it. The group also favors income tax cuts for retirees, he said, though that wasn't in the report either.
Funeral director Tiff Varney of Arnold, Neb., said taxing funeral services didn't seem fair.
“If you're going to tax services, you should tax them all, lawyers and everyone,” Varney said. “You can't play favorites.”
Another Nebraska think tank, the Open Sky Policy Institute in Lincoln, has said there's no proof that income tax cuts lead to economic growth. Open Sky has said the state should focus on lowering local property taxes by increasing the state aid it sends to public schools, cities and counties.
* * * *