Gov. Dave Heineman delivered his State of the State address this focusing on the need for tax reform that will benefit working and retired Nebraskans, and growing the State's economy by helping small businesses prosper. Gov. Heineman is calling for the elimination of the individual income tax and the corporate income tax.
"This week in my State of the State address, I focused on the need for tax reform," said Gov. Heineman. "Taxes are too high in Nebraska. High taxes impede economic growth and high taxes aren't attractive for entrepreneurial growth and high paying jobs."
Senators Ashford and McCoy will introduce two bills on behalf of Governor Heineman. The first bill eliminates approximately $2.4 billion in sales tax exemptions and the result is the total elimination of both the individual income tax and the corporate income tax.
Key points in the Governor's tax reform proposal:
No individual income tax for working Nebraskans.
No taxing of small business income.
No taxation of Social Security income.
No taxation of military retirement income.
No taxation of any retirement income.
No corporate income tax.
A second bill will eliminate approximately $395 million in sales tax exemptions. This bill would eliminate the corporate income tax and exempt the first $12,000 of retirement income for married couples and $6,000 for single individuals. Both bills exempt food from taxation. These two bills demonstrate the different opportunities and challenges regarding tax reform.
"These two bills demonstrate the different opportunities and challenges regarding tax reform," said Gov. Heineman. "When more sales tax exemptions are eliminated, we have a better opportunity to eliminate the individual income tax and the corporate income tax. The challenge is equally clear. When more exemptions are retained, that will prevent both the individual income tax and the corporate income tax from being eliminated."
Twenty-three states exempt a portion of or all retired military pay, but Nebraska does not. Forty-three states exempt a portion of or all Social Security income, but Nebraska does not. Nebraska's top personal income tax rate is 35th of 50 states; and is higher than all neighboring states.
Nebraska's Tax Foundation Business Tax Climate Ranking is 31st out of the 50 states -- a respected index that businesses rely on when choosing where to locate a business. Gov. Heineman added, "Being in the bottom half of all states is mediocre, at best."
The State exempts more in sales taxes then it collects. Currently, the State exempts $5 billion in sales taxes annually, while only collecting $1.5 billion annually.
It has been nearly five decades since Nebraska had a serious debate about its overall tax system.