Gov. Dave Heineman's $327 million tax cut plan hit a wave of opposition Thursday as county officials filled a committee room to protest the termination of the inheritance tax.
Heineman touted his tax cut proposal in the Legislature's Revenue Committee during the first hearing on LB970, which was brought by Sen. Abbie Cornett of Bellevue on behalf of the governor.
"Nebraska's income tax system is unfair to middle-class families," the governor said. "Some will argue that the state can't afford tax relief, but that's not true.
"The choice for us is clear; tax relief for hard working, middle-class Nebraskans or more spending for special-interest groups. I hope you will join Sen. Cornett and me in providing tax relief for middle-class Nebraskans."
The measure would lower individual and corporate income taxes. It also calls for an end to the inheritance tax, which as expected, was the flashpoint during five hours of testimony Thursday.
The inheritance tax, levied on estate recipients when a person dies, is used by many counties to build rainy day funds or pay for programs such as caring for the elderly and the indigent.
County officials made it clear during the hearing they that don't want to lose that money, and if they do, public programs and services could suffer.
Either that, or it would mean three words: Property tax increases.
Mary Ann Borgeson, vice-chairwoman of the Douglas County Board, opposed the bill, saying that ending the inheritance tax amounts to a tax shift.
She said Douglas County would lose $8.5 million per year, money that now is used to care for the poor, veterans' issues and long-term elderly care.
"If the county loses this revenue, Douglas County would have to approve an increase in the property tax," Borgeson said.
"LB970 in reality is nothing more than a tax shift. Property taxpayers should not be burdened with the shortsightedness of this plan."
Lancaster County officials said they would lose $6 million per year, which amounts to 120 jobs.
A quality community, a solid business climate and a low crime rate would all be jeopardized by the elimination of the inheritance tax, they said.
Larry Dix, director of the Nebraska Association of County Officials, said nearly every county would suffer under LB970.
"The belts have been tightened," he said. "We are to the point where the belt tightening can go no further.
"We will be looking at a property tax increase. That's all we have. If our property taxes go up, the tax cuts don't really help anything."
Heineman outlined his tax relief package in his State of the State address, calling it the single most important priority of the legislative session.
There was little discussion Thursday on reducing corporate and individual income tax rates over three years, starting in 2013.
The proposed cuts would take effect in January 2013, with nearly $274 million in relief for individuals and nearly $53 million for businesses.
Meanwhile, state Sen. Heath Mello of Omaha has introduced LB977, the Property Tax Relief Act.
Under the bill, Nebraska homeowners would receive approximately $76 million in property tax relief. Through a homestead exemption of the first $8,000 in a home's value, the average homeowner in Nebraska would receive more than $150 in property tax relief annually.
Heineman reiterated Thursday that the state can afford his tax cut plan and said it would ease the tax burden for middle-class Nebraskans.
"By improving our income and corporate tax rates, as well as repealing the final leg of the death tax," he said, "we will help hard-working, middle-class Nebraskans and our small businesses, while continuing to make Nebraska more competitive for high-quality jobs for the next generations of Nebraskans."
