February 14, 2013

The Daily Nebraskan: Legislators stall Gov. Heineman’s tax reform plans

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(Original Post)

Posted: Thursday, February 14, 2013 12:00 am

Daniel Wheaton

Gov. Dave Heineman thought tax reform could be realized by the end of this year’s legislative session.

Now, legislators aren’t so sure.

Heineman announced in January his plans to overhaul the Nebraska tax system by cutting billions of dollars of tax exemptions, with the aim of ending the state income tax.

His legislative allies, Sens. Beau McCoy and Brad Ashford of Omaha, submitted two bills, LB405 and LB406, which act on Heineman’s plan. At the hearings for the bills on Feb. 6 and 7, the proponents suffered harsh opposition from businesses, farmers and college students.

Reconsidering their strategy, the senators have proposed a “working group” of business interests to help hammer out the details. But the group is still receiving criticism from state senators.

“This requires a process that is more thoughtful than trying to put something together in a month or two,” said Omaha Sen. Steve Lathrop.

Omaha Sen. Heath Mello agreed with Lathrop’s contentions, noting the need for a yearlong study on tax policy and a debate in the following year. That decision is up to the Revenue Committee.

Following the same theme, Sen. Paul Schumacher of Columbus introduced LB613. This bill would create a long discussion on current and future tax policies. The public hearing will be held on Feb. 19.

Renee Fry, executive director of OpenSky Policy Institute, said she was glad last week’s tax hearing stalled the process.

OpenSky released data on Feb. 1 that analyzed how the current plans would harm individuals. The shift from a generally progressive tax to a regressive tax would cause lower income people to pay a larger share of their income in taxes.

Fry said the burden would fall hardest on low- and middle-income wage earners because they spend more of their disposable income than do people with higher incomes.

Students would end up paying more for college, dorm rooms and nearly every other product under the plan. Fry said OpenSky hasn’t done any research into how students’ spending would be affected by the bills.

Meg Brannen, a senior advertising and public relations major and president of the University of Nebraska-Lincoln Residence Hall Association, testified against LB405. She said she was glad the process appeared to be stalled and she agreed with OpenSky’s findings. Shifting the tax base to lower and middle class incomes is “incredibly unfair,” Brannen said.

As discussions continue, Brannen said she hopes the Revenue Committee keeps protections pertaining to college students.

“I really hope they don’t negate the tuition freeze,” she said.

Although Fry opposes the current plan, she does agree changes should be made to the tax code.

“We support a long-term process,” Fry said. “We need to modernize the tax code, but we spent seven months on studies looking at the impact of changes.”

During her testimony, she repeatedly said the plan “violates the principles of a sound tax policy.”

Fry defined a sound tax policy as simple, efficient and promoting growth in the middle class. The current system is based on a less service-heavy economy.

“We tax a night at the movies, but not a day at the spa,” Fry said.

Agreeing with Heineman’s intentions to simplify the tax code, Fry said his plans had too many unintended consequences.

John Anderson, a professor of economics at UNL, said eliminating all exemptions would result in some instances of double and triple taxes. This is known as “pyramiding” and would increase costs for manufacturing and other industries.

“These kinds of reforms take time to play out,” Anderson said.

If the legislature is serious about tax reform, Anderson said, tangible reform could be reached in the next legislative session.