Almost 30 days after making his proposal to overhaul the state income tax system, Governor Heineman (R-NE) asked lawmakers to withdraw LB 405 (eliminating the state income tax and corporate taxes), and his less ambitious LB 406 (elimination of income tax for seniors and corporate taxes), after rising criticism from agriculture and business sources over losing sales tax exemptions.
In a rare political loss for Heineman, the debate had been running against his proposing the revenue stream move from personal income taxes to private business sales taxes by eliminating sales tax exemptions for businesses, agriculture, charitable organizations and colleges. Several large manufacturers and transportation companies suggested they would relocate if LB 405 was passed. Even as the legislative bills were withdrawn, Heineman did not draw heavy criticism, but commentary that a need for further dialogue remains.
"I would say it's a strength to realize you have a plan that's not well thought out and to say you can do better," said State Senator Burke Harr of Omaha. Legislative Speaker Greg Adams also recognized that the bills were probably not going to get out of the Revenue Committee to a full vote, regardless. Senator Harr is a member of the Revenue Committee.
In the end, while these particular bills are gone; an acceptance remains in the Unicameral for further discussion and review of the state's income tax system.
Adams pointed out that major tax changes in 2014 will rely on the work, in the meantime, of the Revenue Committee. Senator Galen Hadley of Kearney, chairman of the Revenue Committee, wants to create a tax study committee, with eight members of the Revenue Committee, and other interested senators, to review the tax system, and make recommendations next year.
Will it be enough to bring new and important changes to the income tax system? Lawmakers disagree about the chances for major changes next year, already. The governor will be a lame duck. It is an election year. Senators with either focus on re-election, or will be leaving due to term limits. The legislature is scheduled to meet for 60 days, instead of the usual 90.
Senator Brad Ashford, from Omaha, one of the co-sponsors of Governor Heineman's bill, predicts a difficult time to get major legislation passed.
Regardless of the results, for the moment, it seems the introduction of the idea, the willingness to voice a concern and offer a solution, has given Governor Heineman the tool to begin a dialogue that is important and necessary. In the atmosphere of "Buffett Rule" tax ideas among progressive politicians (raising personal income taxes to punish "the rich") offering a change to pay less in taxes, especially for seniors, military, and new job seekers sounds innovative.
It will also make the coming debates among mayoral candidates in Omaha interesting, how they choose to either embrace the idea or run from it, and its potential to generate greater income for the city budget.
Hopefully, at this time next year, we wont have just spent another year talking and not taking any action.