Governor Heineman's State of the State address

Gov. Dave Heineman


LINCOLN — Nebraska isn't the only state looking to eliminate state income taxes.

Republican leaders in both Louisiana and North Carolina are pushing plans similar to Nebraska Gov. Dave Heineman's pitch — elimination of income taxes on individuals and on corporations to boost their local economies.

Other states, including Oklahoma, Kansas, Missouri and Indiana, are pursuing less ambitious plans to reduce income taxes.

Heineman, a conservative Republican, will unveil the details of his plan at a press conference this morning.

The governor said Thursday that he hasn't talked to leaders in other states. But he said he believes that they've all come to the same conclusion: their states' tax systems must be updated and reformed to boost economic growth.

“Those governors have figured it out as we have here,” Heineman said. “I want to see good-paying jobs in Nebraska.”

But one speaker at the State Capitol on Thursday dismissed the premise that lower income taxes spur job creation and said the tax shift proposals are part of a “right wing agenda” to decrease taxes on high-wage earners and those who have enjoyed “success.”

“It's supply-side economics re-emerging,” said Richard Pomp, a University of Connecticut professor and an authority on state tax policy.

Pomp, during a tax symposium sponsored by the OpenSky Policy Institute, a Lincoln think tank, said there is no empirical evidence proving that eliminating personal and corporate income taxes spurs job growth.

He also warned against using tax rankings by groups such as the Tax Foundation —which is often cited by Heineman — to justify sweeping changes in tax laws. That group ranks Nebraska 31st in overall business tax climate, a rank the governor has labeled as “mediocre.”

Pomp said he has represented dozens of companies in location searches. They don't pay attention to such rankings but instead do an in-depth analysis of how a state's taxes, as well as its workforce, energy costs and educational system, will affect their ability to make a profit.

“Nebraska actually has a number of attractive factors to bring companies to the state,” Pomp said.

Heineman was unavailable late Thursday afternoon to respond to Pomp's comments.

But Jim Vokal, executive director of the Platte Institute, an Omaha-based think tank, disputed the comments and said states that don't levy a personal income tax have had greater economic vitality in recent years.

Vokal, a former Omaha City Council member, said the Platte Institute supports the governor's goals.

“What he's doing is not a partisan thing,” he said. “It's a prudent, philosophical effort to improve the quality of life in Nebraska.”

Heineman has said that he would replace the $2.4 billion lost in annual revenue from state income taxes by doing away with a similar amount of sales tax exemptions.

That has farm, business and hospital groups on edge, because it could mean new tax bills when farmers buy tractors, manufacturers buy equipment, and when people stay in a hospital or a college dormitory.

The governor has said only one current sales tax exemption — on groceries — is off the table. He has said a wide range of the $5billion in sales tax exemptions now granted are being considered.

Such a massive tax shift will be difficult, Heineman told reporters on Thursday. But he asked Nebraskans to consider what life would be like if residents — like those in Texas, Florida and South Dakota — didn't pay state income taxes, and corporations didn't pay income taxes.

“Look at the benefits,” he said. “Nebraska will be more attractive for business, more attractive for good, high-paying jobs.”

The tax plans in Nebraska, North Carolina and Louisiana are billed as “revenue neutral,” in that they aim not to change overall tax revenue. All would instead turn to new tax sources to replace income taxes.

Unlike Nebraska, the North Carolina and Louisiana plans call for increases in sales taxes to offset the elimination of income taxes. North Carolina's plan also calls for the creation of a “business fee” and a new tax on real estate transfers.

A conservative North Carolina group, the John W. Pope Civitas Institute, has praised the plan, saying it will reverse a trend that has left the state with slower growth than its neighboring states.

But a liberal think tank with an office in that state, the Institute on Taxation and Economic Policy, has labeled the plan a “tax swap” that will cut taxes for businesses and the wealthy and increase taxes on the bottom 80 percent of wage earners.

That group has labeled 2013 “a watershed year for tax reform” and has predicted that 15 states, including some led by Democrats, could enact major changes. Some states could increase income taxes on high earners, said Meg Wiehe, the policy director of that tax institute.

Nebraska's governor, she said, might be among those state leaders who want to make tax cutting their legacy.

Heineman's term will end in 2014, and he has focused much of his energy on economic development and has talked frequently about improving the state's business tax ranking.

He said Thursday that he's heard positive comments from Nebraskans about the plan since his State of the State address. He said he's also been interviewed by several national media outlets.

“People are paying attention to what we're doing in Nebraska,” Heineman said.

Meanwhile, Sen. Pete Pirsch of Omaha introduced two bills Thursday to lower individual income tax rates for all income brackets, and lower corporate income taxes. The first bill would reduce taxes by $200million.

Pirsch said his bills were “ambitious and achievable.” He did not oppose the governor's ideas but described them as “bold and revolutionary.”

Contact the writer: 402-473-9584, paul.hammel@owh.com

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