News Column

Q&A: Nebraska Governor on Tax Cuts, Medicaid

Feb 7, 2013

Josh Goodman

Few governors are in as enviable a position as Nebraska's Dave Heineman. The Republican has one of the highest approval rates of any governor in the country, and his state has one of the lowest unemployment rates. After winning four-year terms with more than 70 percent of the vote in both 2006 and 2010, last month he became the longest-serving governor in Nebraska history.

As Stateline recently reported, however, Heineman's test this year is whether he's popular with the 49 Nebraskans who matter most: the members of the state's one-chamber legislature. The governor is trying to persuade lawmakers to make Nebraska the first state since Alaska more than 30 years ago to end its income tax. Plus, he's hoping to convince them not to expand Medicaid under the federal Affordable Care Act.

Stateline staff writer Josh Goodman asked Heineman about these two issues. Below is an edited transcript that explores in more detail his thinking on the topics.

Q: Tell me about the tax plan -- what you're hoping to achieve and why you've designed it the way you did.

A: What our tax reform package is all about is to be more tax competitive to create more jobs and higher-paying careers. So, it's not just about more jobs. We want to create more jobs that pay $60,000-a-year, $70,000-a-year, $80,000-a-year -- middle-class family incomes. To be competitive in today's marketplace both domestically and internationally, I think we've got to have a better tax system than we have.

What we're proposing is to eliminate the individual income tax and the corporate tax. When you do that, working Nebraskans would no longer pay income taxes. Small businesses would no longer have their income taxed because they primarily pay through the individual income tax. Social Security income that we've never been able to find a way to exempt would now be exempt. Military retirement income would be exempt.

We're proposing to do it in a way that is revenue neutral and budget neutral and that is to eliminate some of the sales tax exemptions that we've granted in the past. They have had a purpose, but our tax system was basically designed back in the 1960s. We didn't even have computers then. We live in an electronic age and a technology-driven global free market economy. We need a modern, fairer and simpler tax system.

Q: Tell me what your thoughts are on sales tax exemptions. Some of the business inputs (such as raw materials in manufacturing or farm equipment in agriculture) ones might be of concern. There are other things like medicine that could create some controversy. What are you looking at?

A: We collect about $4 billion (a year) in current revenues: $2.4 billion from the income tax system, about $1.5 billion from the sales tax and a little bit of miscellaneous. But we exempt $5 billion. We exempt more than we collect.

What I'm trying to suggest to everybody -- and I've talked to a number of business leaders who agree -- would you be willing to give up some of your exemptions to get to this more favorable tax climate? They say yes because they're tired of telling their accountants and their lawyers to mine the tax code for exemptions to make a profit, instead of doing it in the marketplace.

I'll be the first to admit when you talk about business inputs or any of the rest, there are legitimate reasons why we did the exemptions, but that was 30 or 40 years ago. Now...if everybody says I won't give up my exemption, then I'm going to tell them you're for the status quo. You're for losing our sons and daughters to other states that are going to give them better-paying jobs. I think most of us care about our sons and daughters and our grandkids, and we want a better Nebraska.

Q: Is there any part of you saying, "I don't like the health care law, I don't really like the Medicaid expansion, but in at least the first couple of years it's such a good deal that we need to take it and we can see later." Anything like that?

A: I'm not in favor of the president's health care law, but I raise my right hand like every other elected official. It's the law of the land. It's been tested in court. He's won reelection. It's going forward. So, I'm going to implement it in the most efficient and effective manner I can.

I studied the exchange -- whether to do a federal or state exchange -- much more extensively than most states. I started out thinking I was going to do a state exchange. It was contingent on two things: We had operational control and it was going to cost less money. Neither turned out to be true. It cost $470 million more to do a state exchange, so it just made sense to do the federal one.

That's exactly where I'm at on the Medicaid expansion. If it's too costly, it doesn't make sense. We've calculated that it's hundreds of millions of dollars long-term that we can't afford that will take away from the education of our children. Obamacare goes into effect January 1, 2014. I had to put $72 million in my budget for the growth of the current Medicaid program when that kicks in.

Let's talk about the expansion. That's your tax money and my tax money. That's not free federal dollars. Secondly, once you give people health insurance -- because it's too important -- you expand this program, you can't go back. My attitude is right now we can't afford it.

I'll also make the point that the federal government said on special education, "We'll fund it at 40 percent." They're doing about 18 or 19 percent. They're broke. Do you think they're going to hold at 90 percent to10 percent (for the Medicaid expansion)? There's no way they can. But even that 10 percent costs us too much money. Now, if someone can prove to me that's not true, I'll listen. But right now the math doesn't add up.


Distributed by MCT Information Services

Source: (c) 2013

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