As a counter-proposal to the Governor's Legislative Bill (LB 405) to eliminate the state income tax and draw revenue from sales taxes by eliminating exemptions for charities and other non-profits, as well as business and agriculture purchases; State Senator Danielle Conrad (D) of Lincoln has proposed a version of the "Buffett Rule" to boost revenues by raising taxes on the wealthy. LB 532 would create a new tax bracket, for individuals earning $400,000 and couples earning $450,000 or more. These are the same benchmarks the Congress reached in its recent resolution of the "fiscal cliff" negotiations at the beginning of 2013.
The term "Buffett Rule" was coined in response to a statement from Nebraska resident, Warren Buffett, the CEO for Berkshire Hathaway, a highly successful investment company. He expressed support to elevate tax rates on the wealthy, backing the President's position in negotiating with Congress in 2012. He said it's wrong he pays a lower rate than his secretary and those who were wealthy should pay more.
Of course, now we have the "Mickelson Reality"; expressed this week by PGA golfer Phil Mickelson after playing in the Humana Challenge. He said he would need to make "drastic changes" in response to the elevated tax rates in California combined with the tax rates which were raised in Washington. Without sales tax, or property tax, Mickelson is facing an income tax rate over 62% on his earnings this year. Texas, Florida, Nevada, Alaska, Wyoming, and South Dakota operate without income taxes, generally relying on revenues generated by taxing one or two primary industries. Nebraska's governor wants to join that list and promote our state to new businesses with no income tax, to balance the rising rates at the federal level. He is also promoting the idea of eliminating income tax on retirement benefits, to slow the loss of senior residents who relocate when they retire and can't afford the income tax rates. Senator Conrad's proposal does not provide relief to senior citizens. It moves 4,000 wage earners' taxes from 6.84 to 7.74 percent, raising $35 to $45 million, in theory. These people would then find themselves paying almost 50% of their income to federal and state income taxes. Not quite as bad as California, but we don't have the weather or view, either.
Conrad believes sales taxes are "regressive" because poor people pay a higher percentage of their income on them compared to the wealthier. She defines income tax as "progressive" because the state increases rates as you become wealthier. The areas the governor wants to eliminate exemptions, to generate the revenue needed for this bold proposal, actually affect businesses and organizations who are succeeding, experiencing more transactions, and therefore buying more equipment, resources, or providing more service. Farmers who need more seed, or who are purchasing large farm equipment; business which invests in machinery; or charities needing to purchase supplies are paying taxes that they did not pay before; but that is predicated on activity and success. This seems much more "progressive".
The danger in moving away from the state income tax is that it might work, and if it does and if more revenue was generated, it would provide an example to other states and the federal government for an alternative method of generating revenue. The potential danger to adding another tax bracket is, South Dakota is not that far away.