Nebraska's Heineman Pitches a Broad Tax Cut Package

While President Obama has repeatedly used Warren Buffett to make the case for allowing federal tax rates on the rich to increase, Nebraska Governor Dave Heineman is pointing to the legendary Omaha investor to make a very different case. Heineman's top legislative priority this year is tax cuts. "If your adjusted gross income is more than $54,000, you are taxed at the same marginal rate as Warren Buffett," Heineman, a Republican, said. "That is unfair to middle class families. Our hard-working taxpayers are tired of government taking too much of their paycheck."

Heineman's plan is to lower the rate and raise the income threshold for every tax bracket, changes that would offer every income taxpayer a tax break. Under the plan, the top rate would kick in at $60,000, instead of $54,000. Besides personal income tax cuts, Heineman also wants to cut the corporate income tax and to abolish the inheritance tax. 

Heineman's plans may not be as ambitious as those of tax cutters in Kansas , Oklahoma and Missouri . Still, the changes are large enough and consequential enough to prompt major debate. They face an uncertain future, even though Heineman's fellow Republicans have a sizable majority in Nebraska's nominally non-partisan unicameral legislature.

Heineman argues that the tax cuts will improve the state's business climate. He regularly cites Nebraska's 30th place rating in the Tax Foundation's latest business climate rankings  as evidence the state's taxes are too high. Plus, he notes that Nebraska is one of only a handful of states where inheritances are still taxed. Farm groups have also called for ending the tax.

In Nebraska, money from the inheritance tax doesn't go to the state treasury. Instead, the tax is levied by counties. County governments are complaining that their state aid was cut in Nebraska's most recent budget, and they're warning that they will raise property taxes if the inheritance tax revenue is cut off. The counties won an initial victory when the legislature's Revenue Committee informally opposed the inheritance tax plan earlier this month.

Meanwhile, on the corporate and personal income tax cuts, the debate is over whether the state can afford to take in less money. Nebraska has a surplus in the two-year budget period that began July 1, 2011, but in the biennium that begins July 1, 2013, the Legislative Fiscal Office is projecting a shortfall. Heineman is hoping the legislature will approve the tax cuts this year, even though Nebraska won't write a new budget until next year.

If he gets his way, that could leave the legislature with hard decisions later. "This discussion is not happening in the context of the overall budget," says Renee Fry, executive director of the OpenSky Policy Institute, which is opposing the tax cuts. "The budget debate would be next year. It's really difficult to know what would have to be cut next year."

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