- Associated Press - Tuesday, January 14, 2014

LINCOLN, Neb. (AP) - Nebraska Gov. Dave Heineman will call for tax cuts in his annual State of the State address Wednesday, arguing the state can afford to slice them by between $370 million and $500 million.

The Republican governor said Nebraska can manage at least $220 million in cuts by tapping its cash reserve, and said additional money would be available if the state maintains its current expected growth rate. He also pointed to the state’s economy, which has grown in the wake of the recession due largely to prospering farms.

“Taxes are too high in Nebraska, and high taxes are detrimental to economic growth and prosperity,” Heineman said Tuesday at a rare evening news conference. “Nebraska’s strong agriculture economy won’t continue to exist with unreasonably high property taxes, and high taxes limit the ability of small businesses to create new jobs. Now is the time for property and income tax relief.”

The 2014 legislative session is expected to focus on state tax policy.

A December report by the Legislature’s Tax Modernization Committee concluded that Nebraska’s tax code isn’t substantially different from neighboring states, and it recommended against drastic action. The report was approved by 10 members of the committee, while four refused to sign it.

But Heineman said he supports a Nebraska Farm Bureau proposal to lower the taxable value of agriculture land to 65 percent of its market value, down from the current 75 percent. He said he also will push for reductions in the state’s individual income tax, but did not offer specifics Tuesday night.

The state’s cash reserve sits at $722 million, a record in terms of total dollars. The reserve serves as a rainy-day fund for the state when the economy tanks, so its size relative to the budget determines how long the state could continue its appropriated spending.

The plan drew criticism from two Democratic lawmakers, including the chairman of the Legislature’s Appropriations Committee.

“Unfortunately, Governor Heineman is proposing to create a legacy for himself at the expense of future generations of Nebraskans,” Omaha Sen. Jeremy Nordquist said in a written statement. “It is clear that the governor has one priority: cutting taxes for the wealthiest Nebraskans. We don’t need to guess about what the governor’s plan will do.

“Enormous tax giveaways for the wealthy did not create greater economic growth in Kansas; it created massive cuts to K-12 and higher education,” Nordquist said, referring to laws enacted in Kansas last year.

Sen. Heath Mello, the budget chairman, said the state’s high cash reserve was due to a one-time surge after the 2012 fiscal cliff scare in Washington, the uncertainty of which prompted the state to sell off investments. It generated about $125 million in state tax money.

Mello has argued it may have robbed the state of future revenue, because the investors might have otherwise maintained their holdings and sold them at a later time.

Heineman dismissed the criticism of his proposal, saying he relied on the Legislature’s own budget numbers.

“We’re talking about responsible and meaningful tax relief for the citizens of Nebraska,” he said.

Heineman, who has repeatedly advocated for tax cuts in the last few years, said his plan was based on reactions from Nebraska residents whom he encountered in his travels. His tax cut proposal from the 2012 session went into effect in January; for a married couple with a $50,000 adjusted gross income, those cuts amounts to about $67 a year.

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