Blueprint Nebraska tax plan likely won’t be debated this year

Linehan says McDonnell’s proposal needs work

By: - February 23, 2022 5:56 pm

State Sen. Mike McDonnell of Omaha (Courtesy of the Unicameral Information Office)

LINCOLN — A comprehensive reworking of state taxes, proposed by a coalition of business groups called Blueprint Nebraska, will probably have to wait another year to get off the ground.

After a public hearing featuring the CEO of Union Pacific Railroad and representatives of the Nebraska and Omaha chambers of commerce, the State Legislature’s top tax senator described the Blueprint proposal as needing more work.

State Sen. Lou Ann Linehan of Elkhorn, who chairs the legislative committee that handles tax issues, said that “pieces” of the Blueprint plan fit within current priorities, including reducing the top state income tax rate, but that the expansive proposal could use more study.

Tax modernization

Even former Sen. Jim Smith, who helped lead development of the Blueprint Nebraska tax plan, acknowledged it is probably too late, with half of the 60-day legislative session already over, to get such a comprehensive proposal prioritized, debated and passed.

“Whether it’s this year or ’23, we think that this approach is what’s needed if we want to compete,” Smith said. “This bill is what tax modernization looks like.”

Legislative Bill 1264, introduced by Omaha Sen. Mike McDonnell, has been in development since 2018. Supporters bill it as essential if Nebraska is going to become more competitive tax-wise, attract more workers, and increase its population.

Highly skilled workers

The bill combines state income tax cuts with a broadening of the sales tax base to include more services not currently taxed. It contains student loan forgiveness programs to attract highly skilled workers and would phase out business incentive programs.

Under the plan, sales tax collections would rise by $2 billion over 10 years, which would allow — but not mandate, a critic said — cuts in property taxes.

The bill proposes eliminating state income taxes for those who earn less than $50,000, which would help lure more workers to Nebraska, said advocates, which included the Omaha-based Platte Institute.

“There are 51,000 job openings on the (state jobs) website right now. Our current workforce can’t fill even half of them,” McDonnell said. “We need to retain and attract more people to Nebraska.”

The bill would lower the state’s top income tax rate from 6.84% to 4.99% by 2028. A bill introduced by Linehan would reduce the top rate to 5.58% over several years, but it is facing opposition this week on the floor of the Legislature.

Economic modeling done on behalf of Blueprint Nebraska projects that LB 1264 would create 65,000 new jobs and add or retain 70,000 residents by 2031. Nebraska added 135,163 new residents between 2010 and 2020.

Iowa proposing tax reduction

Bryan Slone, president of the Nebraska Chamber of Commerce, said 20 other states, including Iowa, are adopting similar plans to “broaden” the tax base and lower overall rates. He said a 4% state income tax would soon be the norm nationally.

The Blueprint plan “asks for bigger things and bolder action” than previous plans to revamp the state’s tax system, he said.

But critics of LB 1264 questioned the growth projections. And a representative of the Nebraska Medical Association testified that only one other state now taxes doctor’s office visits and medical equipment and said doing so would increase health care costs.

Politically, the proposal faces a likely hurdle in Gov. Pete Ricketts, who opposes shifts in taxes, which the bill would do by eliminating sales tax exemptions.

Tiffany Friesen Milone of the Lincoln-based think tank OpenSky Policy Institute, told members of the Legislature’s Revenue Committee that the fiscal note on LB 1264 projects a $1.3 billion decrease in state revenue, which would stifle investments in education and roads, things she said stimulate growth.

Hike investments

She said that two comparable states, Minnesota and Wisconsin, took different paths recently in seeking growth. By “almost any metric,”  Minnesota achieved more economic activity by hiking investments in education and social services and not slashing taxes as Wisconsin did, she said.

Lobbyist Korby Gilbertson, who represented 19 groups, from state lawyers and accountants to builders and contractors, said that imposing sales taxes on such services would have a negative impact on consumers and businesses. 

In closing the hearing, McDonnell said he was willing to work with the Revenue Committee on an interim hearing this summer and fall if that’s what it takes to get the Blueprint Nebraska plan in shape.

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site.

Paul Hammel
Paul Hammel

Senior Reporter Paul Hammel has covered the Nebraska Legislature and Nebraska state government for decades. He started his career reporting for the Omaha Sun and later, editing the Papillion Times group in suburban Omaha. He joined the Lincoln Journal-Star as a sports enterprise reporter, and then a roving reporter covering southeast Nebraska. In 1990, he was hired by the Omaha World-Herald as a legislative reporter. Later, for 15 years, he roamed the state covering all kinds of news and feature stories. In the past decade, he served as chief of the Lincoln Bureau and enterprise reporter. Paul has won awards for reporting from Great Plains Journalism, the Associated Press, Nebraska Newspaper Association and Suburban Newspapers of America. A native of Ralston, Nebraska, he is vice president of the John G. Neihardt Foundation, a member of the Nebraska Hop Growers and a volunteer caretaker of Irvingdale Park in Lincoln.