LINCOLN, Neb. — Gov. Dave Heineman is preparing a "united front" of Nebraska business and farm groups to push for a multiyear tax reduction package after a new legislative session begins on Wednesday.
The Republican governor said he will focus this year on reducing property taxes for farmers and personal income taxes for families making between $60,000 and $120,000 a year. Without giving specifics, Heineman said the plan would include "hundreds of millions of dollars" in tax relief phased in over several years.
In an interview with The Associated Press, Heineman said he has spoken over the last few months with groups that represent farmers, ranchers and businesses. Last year, those groups were among the first to publicly oppose Heineman's plan to eliminate or reduce Nebraska's income tax by getting rid of sales-tax exemptions — many of which benefited them. The opposition snowballed, and Heineman withdrew the bills so lawmakers could conduct a six-month tax study.
"I think there's going to be a united front in favor of meaningful tax relief, which would include lowering ag-land valuations and income tax relief," Heineman said. "That helps farmers and ranchers, it helps middle-class families, and it helps small business owners and entrepreneurs."
Heineman said he has met with the Nebraska Farm Bureau, the Nebraska Cattlemen, and chambers of commerce from Omaha, Lincoln and elsewhere in the state.
"It's not about lowering taxes just to say you've lowered taxes," Heineman said. "This is going to be a discussion about the future of Nebraska over the next 25 years. I want us to create more jobs and higher-paying jobs, and the only way you're going to do that is to have a more competitive tax code."
The Nebraska Farm Bureau has proposed a $405 million property-tax relief plan phased in over three years, said Steve Nelson, the group's president. The proposal would drop the percentage of taxable ag-land value from 75 percent to 65 percent for farmers and ranchers in its first year. It also would increase funding for Nebraska's property-tax credit program.
"We keep coming back to the three-legged stool — the balance between property, sales and income taxes," Nelson said. "It's the property tax leg that's out of balance. It's over 45 percent (of all taxes paid to the state and local governments), when it should be a third. From a farm and ranch perspective, there' no question that property taxes are the greatest concern we have."
Leaders of the Nebraska Chamber of Commerce and Industry met with Heineman a few weeks ago to discuss its proposals to reduce individual income taxes, as well as its concerns over the corporate income tax and tax brackets that haven't shifted to keep pace with inflation. The chamber has also talked with farm and ranching groups that have similar concerns about property taxes on ag land, said Barry Kennedy, the chamber's president.
"We're maintaining those lines of communication," Kennedy said. "If anything is going to get accomplished this year in the way of taxes, it's going to have to be done in a coalition."
Kennedy said the group's member businesses have struggled in recent years to recruit workers to higher-paying jobs, and Nebraska's tax rates are generally higher than its neighboring states, except for Iowa.
Kennedy said the group is waiting for new projections in February from the Nebraska Economic Forecasting Advisory Board, which predicts state revenue. The board's estimates could influence how much money will be available for tax cuts, he said. Lawmakers also could reach into the state's cash reserve, Kennedy said. The rainy-day fund was expected to reach $725 million by the end of fiscal year 2015. The reserve gave lawmakers a revenue source during the recession, which helped avoid tax increases.
"There does need to be a healthy reserve, we fully admit that," Kennedy said. "But I think there's some flexibility there."
A December report by the Legislature's Tax Modernization Committee said no major changes were needed in Nebraska's tax system. A majority of lawmakers on the panel concluded that Nebraska's tax system is similar to other states, and dismissed the notion of drastic cuts.
Four of the 14 members refused to sign the report, and at least two are preparing tax-cut proposals of their own. State Sen. Beau McCoy, a Republican candidate for governor, was expected to unveil details for an "aggressive tax relief" plan on Monday. Another Republican hopeful, Sen. Charlie Janssen, has said he also plans to introduce a tax package.
Sen. Heath Mello, a member who supported the findings, said lawmakers need to take a longer-term look at state funding for K-12 education and unfunded mandates on county governments. Cuts in state aid have been blamed for increased local property taxes. Mello said he also hoped to see targeted tax relief that would benefit middle-class families.
"Any radical tax changes will need an accompanying budget to show that it isn't just a shift to property tax payers," said Mello, who also leads the Legislature's budget-writing Appropriations Committee.
The cash-reserve windfall came largely from personal-income taxpayers, who sold their investments and paid capital-gains taxes amid fears that Washington's fiscal-cliff showdown would increase the federal rates. Mello said a large reserve would protect against future tax increases, and the one-time sell-off could have cut into future state revenue.
Mello said lowering ag-land valuations benefits a small population within the state and offers no direct benefits to homeowners. He said he plans to introduce a "tax amnesty" bill to encourage delinquent taxpayers to pay their bills, and a measure that would require the Department of Revenue to go after tax cheats.