Gov calls for tax cuts in state address

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January 12th, 2012

Lincoln, NE – In his State of the State speech Thursday, Gov. Dave Heineman proposed cutting taxes, casting his proposal as relief for the middle class instead of more spending for special interest groups. But not everyone sees it that way.

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After four years of tax problems and budget cuts, Nebraska’s doing relatively well again. Last year, the governor said, net tax receipts grew by $349 million. Then, he told lawmakers what he wants them to do with that.

Gov. Heineman began his State of the State speech, addressing child welfare reforms. He promised to work with senators to improve the troubled system. (Photo courtesy State of Nebraska)

“The opportunity to provide tax relief for our taxpayers is now,” Heineman said. “Our hardworking middle-class taxpayers need more discretionary income to take care of their families and to provide their kids a good education.”

Heineman’s proposing lower rates, not just for the middle class but for all tax brackets. Under his plan, a family of four with a $30,000 income would save $42 a year, or 30 percent of the state income tax it now pays. A family with income of a million dollars would save $1,180, or two percent of its current tax bill. Heineman also wants to cut corporate income taxes and eliminate the inheritance tax. Anticipating opposition from groups whose funding has been cut in recent years, the governor said his proposal offers a choice.

“Special interest groups will argue we can’t afford tax relief because they want to take that money from our hardworking taxpayers and spend it on their favorite projects,” Heineman said. “The question is tax relief for hard-working middle class taxpayers or more spending for special interest groups? The choice for us is clear.”

Among those groups affected would be schools, which would see a reduction in state aid of more than $50 million next year under the current aid formula, a cut Heineman’s proposed budget endorses. Karen Kilgarin is a spokeswoman for the Nebraska State Education Association, the teachers’ union.

“He talked a lot about special interests,” she said. “I will tell you right now: NSEA’s special interest is children, and their education. And making sure they get a good quality education. To do that we need resources, not a $50 million cut.”

And Bruce Rieker of the Nebraska Hospital Association said that group will still press for the Legislature to restore the two and a half percent cuts imposed last year on Medicaid providers including hospitals and doctors. On the other hand, Barry Kennedy of the Nebraska Chamber of Commerce and Industry called the governor’s emphasis on tax cuts “right on target.”

“Especially in some of the new technology fields where we need to attract people with certain skill sets and tend to be a little bit higher-paid people,” he said. “There’s jobs out there, and the problem is in attracting those people to Nebraska.”

“Those are things they look at when they make that decision… I think this type of proposal will be helpful,” he said.

Omaha Sen. Jeremy Nordquist, a registered Democrat and a member of the budget-writing Appropriations Committee, criticized the Republican governor’s approach.

“Look, everyone in our state loves tax cuts,” he said. “There’s no doubt about that. But what we don’t love is a system that’s failing the most vulnerable children in our state. What we don’t love is cutting funding for K-12 education and increasing class sizes. What we don’t love is cutting funding for nursing homes and losing nursing home in rural Nebraska. These are problems we have to address.”

“I certainly am willing to look at his proposals on lower and middle-income tax relief,” he said. “But proposing a tax cut of any amount for millionaires and billionaires in our state should be off the table.”

Lincoln Sen. Tony Fulton, another member of the Appropriations Committee and a registered Republican, was more enthusiastic about Heineman’s proposal, while sounding a note of caution.

“My initial reaction is, I like it,” Fulton said. “I get to keep more of my hard-earned money. That’s good. But there is this reality that we have to make it work in our budget.”

The governor’s proposed tax cuts would reduce revenues by about $327 million over the next three fiscal years. That reduction would be in addition to a projected $347 million budget shortfall forecast in a report by the legislative fiscal office at the end of that period. That projection assumes that cuts in school aid will be restored and other spending will continue to grow at historic rates, assumptions the governor’s proposal does not share.

In addition to talking about taxes, the governor in his speech promised to work with senators to improve his administration’s controversial reform of the child welfare system. But he said he does not want to return to the failed system of the past. He also said the state would not default to the federal government on establishing a health insurance exchange.

But Heineman said it would be a costly mistake to spend money to implement health care reform before the U.S. Supreme Court rules on its constitutionality. That’s expected by late June. The legislative session, in which all the governor’s proposals will be considered, ends in mid-April.

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