The Governor presented his State of the State address to the Legislature this past week, in which he outlined what he thought should be the state's priorities during his final two years in office. Governor Heineman noted how he and the Legislature had worked together to make a positive difference for Nebraskans.
Governor Heineman spoke of the importance of education and noted that his budget proposal contains a 5 percent increase in each of the next two years for state aid to K-12 school districts, as well as a 5% increase in special education funding. In respect to postsecondary education, the Governor has been working on an agreement with the University of Nebraska and the Nebraska State College System to help ensure continued affordable access to higher education. The Governor's proposed budget includes an approximate 4% increase for these institutions. In exchange, the university and state colleges have agreed that they will freeze tuition for the next two years at UNL, UNK, UNO, UNMC, Chadron State, Wayne State and Peru State College. The Governor's budget also includes a similar increase in funding for community colleges.
The majority of the Governor's address focused on taxes. He believes taxes are too high and that they impede economic growth. He quoted that a high personal income tax rate raises the costs of working, saving, investing and risk-taking. The Governor also noted that 23 states exempt a portion of or all retired military pay and 43 states exempt a portion of or all social security income from taxation. Furthermore, 42 states don't have an inheritance tax.
The Nebraska income tax generates approximately $2.4 billion annually. The sales tax brings in an additional $1.5 billion. However, the Governor disclosed that the state allows approximately $5 billion in sales tax exemptions. He envisioned that if half of the current exemptions were eliminated, Nebraska wouldn't need an individual or corporate income tax, meaning that there would be no individual income tax on working Nebraskans; no taxing of small business income; and no taxation of social security or military retirement income. There would be no taxation of any retirement income. The Governor's address did not give specifics on his tax proposal, but he hinted that he may support lowering the rates for individual and corporate income taxes as an alternative.
Later in the week, the Governor offered two proposals as his recommendations for changes in our tax structure. Omaha Senators Brad Ashford and Beau McCoy will introduce the legislation on behalf of the Governor. The first proposal would repeal $2.34 billion in sales tax exemptions, which would allow for the total elimination of both the individual income tax and the corporate income tax. The second proposal would do away with approximately $395 million in sales tax exemptions, allowing for the elimination of the corporate income tax and the exemption of the first $12,000 of retirement income for married couples and $6,000 for single individuals. Both bills retain the sales tax exemption for food.
Page 2 of 2 - Every tax exemption that exists was fought for and is supported by different sectors of our society. Under the Governor's broad proposal, sales tax would be collected on medical equipment and medicine; hospital and college rooms; agricultural machinery, fertilizer and chemicals, energy used in agriculture, and seeds for commercial use; business repair parts and services; manufacturing machinery and energy used in industry; and from exempt organizations.
The governor has proposed a substantial change for our tax system. In offering two alternatives, he is giving the citizens of Nebraska the chance to offer their input. I think it is important to have the discussion, as our tax system hasn't faced a major overhaul in almost five decades. It will be interesting to hear from the public as to whether they agree that the income tax is too high, whether they support the elimination of sales tax exemptions or if they are more concerned with other taxes.
I would be interested in your thoughts and opinions on the Governor's proposals, as well as other issues that are before the Legislature. I can be reached at District #1, P.O. Box 94604, State Capitol, Lincoln, NE 68509. My e-mail address is firstname.lastname@example.org and my office telephone number is (402) 471-2733.