State lawmakers consider raising income tax on rich

LINCOLN (AP) – A bill inspired by Omaha billionaire Warren Buffett that would increase state income tax rates on the rich and bring in more than $42 million in its first year was brought before lawmakers Friday.

Sen. Danielle Conrad of Lincoln asked lawmakers to consider creating a new state income tax bracket for the less than 1 percent of tax filers making more than $400,000. The Nebraska and Lincoln Chambers of Commerce opposed the bill, while the Nebraska State Education Association supported it.

Her bill comes up for discussion after Gov. Dave Heineman called on lawmakers to eliminate or reduce state individual and corporate income taxes. Heineman’s bills were met with opposition from farmers, large and small businesses, nonprofits and many other organizations and residents.

“The governor was clear he wanted to have a talk about the tax system,” Conrad said. “I firmly believe if we are going to talk about taxes, it should be comprehensive and we should talk about everyone’s taxes.”

The new income tax rates under Conrad’s bill would increase from 6.84 percent to 7.74 percent for individuals earning more than $400,000 a year, and married couples earning more than $450,000.

The Department of Revenue estimates the measure would bring in more than $42.2 million in 2013 and more than $31.1 million in 2014.

Conrad said Nebraska’s income tax system has always mirrored the federal tax system and she’d like to see that tradition continue. In December 2012, Congress did not extend President George W. Bush-era tax cuts for individuals making more than $400,000 or couples earning $450,000 and above.

“From a policy prospective we have to ask ourselves does it make sense to tax hard working Nebraskans families and working families at the same level as less than 1 percent of Nebraskans who are in that very, very high earning capacity or to make some slight adjustments for people who could pay a little bit more,” she said.

Omaha Sen. Pete Pirsch asked Conrad if the bill would encourage the rich to move to another state with lower tax rates.

Conrad said she doesn’t believe the state’s tax policy drives where people live. Columbus Sen. Paul Schumacher and representatives from the chambers of commerce disagreed, saying the rich can easily move and take their money with them.

John Cederberg, representing the Nebraska and Lincoln chambers of commerce, testified against the bill and asked the committee to indefinitely postpone it. He said he helped write the 1987 statute Conrad wants to repeal.

The law was created because in the 1980s, retiring Fortune 500 executives would move to other states to retire and sell their assets at fair-market value, Cederberg said.

“As a result the community lost their leadership, they lost their philanthropic activities and so forth,” he said.

The Greater Omaha Chamber of Commerce also opposed the bill.

“We don’t want to give tax advisers a reason to tell business owners to move out of the state,” Joseph Young said on behalf of the Greater Omaha Chamber of Commerce.

Conrad pointed out that the extra money could be used to fund education or health care. Larry Scherer of the Nebraska State Education Association said the organization supports the bill because it could help fund public education.

The Legislature’s Revenue Committee heard the bill, along with a second measure by Conrad that would eliminate state income tax reductions for capital gains and special dividends as a result of or during employment.

The Department of Revenue estimates the other measure would bring in more than $29.8 million in 2013 and $31.3 million in 2014. The Nebraska, Omaha and Lincoln Chambers of Commerce opposed it.

Conrad said the most important question to ask is if these income tax cuts are a good value for Nebraska taxpayers.

“We are forgoing a significant amount of revenue to benefit a very small group of Nebraskans,” Conrad said.