It is an ambitious plan. It may not pass, and certainly will be tinkered with before it does, so it's hard to say what the net outcome of Governor Dave Heineman's proposal to transfer Nebraska's tax base from an income tax to a sales tax will be. In the past couple days, I have jokingly invited professional golfer, Phil Mickelson, to move here because of his comments about needing to do "something drastic" to address his own tax burden in California.
Thanks to voters in California raising tax rates on millionaires, and the federal government's "compromise" to avoid the fiscal cliff, Mickelson faces a tax rate over 60% without property taxes and sales taxes, and before the impact of health care, in the state of California. A liberal commentator on CNN called Mickelson a "whiner" because he earns "enough money" and "most people are not sympathetic to a millionaire complaining about taxes". This is what the Obama administration is hoping, what many liberal-thinking states are relying on, as they raise state income taxes while federal rates go up, and the impact is immediate. Nobody cares about "the rich". This same commentator invited Mickelson to move to his home state, Texas, where there is no state income tax. So, he provides the reason why elevating tax rates are not successful in punishing, generating more revenue, or improving the debt crisis we are facing. Those with resources relocate their business, or themselves, to more hospitable tax locations. When you lose that revenue, higher tax rates are moved down to the "less successful" income levels, and spread out to "be fair". This is why everyone should care what the rates are; it shows where things are headed, and you are next!
Governor Heineman's proposal (LB 405), eliminates the state income tax and transfers the method of raising revenue to a broader state sales tax structure (eliminating exemptions for various businesses, charitable organizations, and transactions) but not raising the overall state sales tax rate, and not adding sales taxes on food or medicine, seems extremely attractive and pro-growth as a counter-balance to the federal government's drive to raise income and payroll taxes. If passed, it would place us in a very enviable position to market Nebraska to other businesses and individuals, like Mickelson, to relocate here and adjust their tax burden back to a much more reasonable rate.
In further review, however, a new wrinkle has appeared. Since revenue is raised through sales tax to items which were exempt (like agricultural machinery) it generates more revenue to Nebraska cities, too. Most municipalities (Omaha, Lincoln, Bellevue, etc) add local sales tax to the state tax rate. Adding these taxes to the formerly exempt items and purchases would, potentially, generate more revenue to Nebraska's cities as well. One estimate suggests Omaha, for example, would receive enough in additional receipts equal to the revenue generated by the current property taxes collected. Having understood this, there are already calls that, if passed, the new revenue must be used to reduce or eliminate property tax rates in the urban areas of Nebraska. Once again, a reason for more discussion, and more negotiation.
Hey, Phil, how would you feel about no state income tax, and no property tax? Would that get you to Omaha? (Good golf courses around here, too!) I don't think moving here would be terribly drastic.