Credit Gov. Dave Heineman for a bold stroke.
The proposal he unveiled Tuesday to eliminate the state income tax kicks off the biggest policy discussion in Nebraska in a half-century.
The Journal Star editorial board welcomes that discussion, although we’re waiting for more details and for a clearer picture to emerge on the impact of the governor’s plan before deciding whether the move would be in the state’s best interest.
Heineman, with approval ratings that are stratospheric by most standards, could have coasted through his final years in office and departed with warm applause from a majority of Nebraskans.
Instead, he will be pushing a proposal that is certain to generate opposition from powerful interest groups in the state. It will be interesting to see how the agricultural sector reacts to losing sales-tax exemptions, for example.
There are several indications that Heineman wants elimination of the income tax to be the signature accomplishment of his record 10 years in the governor’s office.
The governor said he plans to promote the plan to the public in appearances around the state. The governor has already spoken to some business groups in private meetings.
By devising the plan to be revenue neutral, the governor apparently also wanted to keep the focus on the tax policy change, rather than on the role and size of government. His proposal, for example, could have combined elimination of the income tax with downsizing of government. That approach would have generated more opposition.
Major questions that will be discussed in coming weeks include:
* If the state income tax is eliminated, the state will need to broaden the sales tax to generate another $2.365 billion a year. What new taxes, specifically, will Nebraskans pay to make up the difference? An early answer to the question will come later this week when a bill is introduced that will identify some of sales-tax exemptions that would be eliminated, the governor said.
* Will elimination of the state income tax make the overall tax system more regressive, shifting more of the tax burden to lower- and middle-income Nebraskans even though food would continue to be exempt?
* What are the long-term implications of a tax system that relies exclusively on sales tax? Will it make the tax system more unpredictable? Will it limit expansion of government programs in the future?
In promoting his plan the governor relies heavily on the state business tax climate rankings published annually by the Tax Foundation.
The rankings strongly favor any state without an income tax. If Nebraska joins the nine other states with no income tax, there’s no doubt that Nebraska will shoot up in the Tax Foundation rankings from its current spot in 31st place.
Heineman said that in the past few months when he discussed Nebraska’s tax structure he was urged by business leaders to be bold.
Heineman took their advice.
The governor had scarcely finished his State of the State address to the Legislature before the quip was circulating that the governor’s proposal was tantamount to the “Lobbyists’ Full Employment Act of 2013.”
Let the discussion begin. There’s little doubt that lobbyists will be hard at work. But this is a topic that should engage all Nebraskans. Don’t miss your chance to weigh in.