Governor Dave Heineman unleashes a game changer, making the case Nebraska needs to eliminate the income tax. It's a bold move but can the state afford it?The money has to come from somewhere, in this case, Heineman says it would come from sales tax. He would eliminate the state's current sales tax exemptions.
It's a radical plan, but one the governor says simplifies the tax code and improves our economic climate. He said, "Taxes are too high in Nebraska. High taxes impede economic growth." He delivered his plan during his annual State of the State address Tuesday.
He said, "There will be no income tax on working Nebraskans. There'll be no tax on small business income. There'll be no tax on Social Security income. No tax on military and retirement income." Eliminating sales tax exemptions would more than replace the loss of the income tax, but it could be a difficult plan to sell. "I know this is going to be a tough conversation but I know we can have it," Heineman said. Senators seemed generally receptive to the governor's plans and that comes as a contrast to the way things ended last year. "Which was not on a good note. He didn't even say goodbye to us," Sen. Kate Sullivan said. "Now, he wants to have a conversation. He could've been, what's the word, domineering about this. He's not conciliatory, he's stating his position. But he wants to hear from us as well." Some argue income taxes are the most fair, because they're based on ability to pay.
The governor believes people would rather pay sales taxes, even if they rise two billion dollars to offset the elimination of the income tax. That would mean more taxes on farmers and manufacturers in particular. He said, "If we aren't willing to make bold change, then that must mean you're for status quo. A mediocre tax system that won't make jobs of the future."
The governor said he doesn't care about building a legacy, and said this is about creating a system that benefits small business and the middle class.
His plan would eliminate both the individual income tax and the corporate income tax.
"Today, we are operating in a technology-driven, global free market economy," Heineman said in part of his State of the State address. "Our current tax system needs to be modernized and transformed. It's been nearly five decades since Nebraska had a serious debate about our overall tax system. Life has changed drastically since the 1960s, when we were operating in a completely different economic environment."
The governor said many of the state's sales tax exemptions have been around since the 1960s and are outdated.