Third time is the charm for $900 million tax-cut plan in Nebraska Legislature
Bill also would phase out tax on Social Security benefits and increase property tax credits
The floor of Nebraska’s unique Unicameral Legislature. (Rebecca S. Gratz for Nebraska Examiner)
LINCOLN — The third time was the charm Wednesday for a massive tax cut proposal in the Nebraska Legislature.
After failing to advance the package twice last week, lawmakers mustered enough votes Wednesday evening to overcome a filibuster and then advance the tax cuts on a 44-0 vote.
The comprehensive and much amended proposal includes reductions in state individual and corporation income taxes, the phasing out of taxes on Social Security checks, and about $395 million in extra property tax credits.
All told, it would cut state taxes by about $900 million when fully implemented. Proponents said that amount would be a record. Critics said the hefty cuts could reduce state tax revenue to the point of harming education, road construction and other state services.
State Sen. Lou Ann Linehan of Elkhorn, a major architect of the much-amended proposal, called it an “important package” that would make Nebraska’s taxes more competitive with its neighbors.
“We need a tax climate that doesn’t scare people off,” Linehan said.
‘Biggest tax cut’
Only Iowa levies a higher state income tax among Nebraska’s neighbors, she said, and Iowa recently passed a law to drop its rate to 3.9%. Under the Nebraska proposal, the top income tax rate would fall from 6.84% to 5.84% over five years, realizing a longtime goal of the state’s business community to reduce income taxes.
“This will be the biggest tax cut we’ve ever done — ever. It’s because Nebraskans have worked hard, and they deserve it,” said Omaha Sen. Brett Lindstrom, who sponsored the tax break on Social Security.
But critics, who successfully blocked the proposal last week, argued that the income tax cuts will benefit primarily the wealthy and that 80% of the corporate tax cuts in the bill would flow to out-of-state corporations.
Omaha Sens. John Cavanaugh and Wendy DeBoer questioned why middle-class families do not benefit from the income tax cuts.
Couples earning less than $60,000 would see no benefit, which DeBoer said means that half of her constituents would get no tax break.
“We’re forgetting the middle class, and I don’t understand why,” DeBoer said.
Omaha Sen. Megan Hunt was among those opposing the tax break for corporations.
“I have no problem with tax cuts for people. I have a problem with tax cuts for out-of-state corporations,” Hunt said.
It took some legislative gymnastics to get the package passed and to wait for a senator who was ill earlier in the day to be present.
The tax cuts were merged into Legislative Bill 873, which was divided into five amendments, requiring approval of each aspect separately over an eight-hour debate that stretched into the evening.
Lincoln Sen. Suzanne Geist, who was absent and ill Tuesday and earlier Wednesday, arrived Wednesday evening to provide a key “yes” vote. Last week, the tax package fell one vote short, but with 33 votes to overcome a filibuster Wednesday, other senators fell in line.
Among worst for retirees
Linehan argued that the state’s top income tax rate is not competitive with other states, and scares away companies and workers. The state’s top rate of 6.84%, which kicks in on incomes of $31,750 and above for an individual and $63,501 and higher for a couple filing jointly.
Lindstrom, who is running for the Republican nomination for governor, has worked eight years toward eliminating taxes on Social Security.
Only 13 states levy taxes on Social Security, Lindstrom said, and Nebraska regularly ranks among the worst places for retirees because of it. The tax break would help 325,000 Nebraskans who rely on that income.
A late amendment to the bill, which brought more support from rural senators, would add additional income tax credits for property tax payments to support the state’s community colleges.
Henderson Sen. Curt Friesen, who sought that amendment, said the “lion’s share” of the property taxes paid to run community colleges would eventually be defrayed by the state credit. In 2021, about $250 million in property taxes were collected by the state’s community colleges, and the tax credits would return $195 million to taxpayers.
Elements of the amended LB 873, the comprehensive tax cut bill:
- Cuts the state’s top income tax rate of 6.84% to 5.84% over five years. A couple earning $100,000 would get a tax break of about $189. But a couple who earned $60,000 or less would get nothing, according to the OpenSky Policy Institute.
- Cuts the state’s top corporate income tax rate, now 7.81%, to 5.84%, also by tax year 2027, about a $70 million cut.
- Speeds up the phase-out of state income taxes on Social Security payments, with a total exemption by tax year 2025.
- Adds a new, refundable income tax credit for property taxes paid to support community colleges. The credit begins with $50 million in tax year 2022 and rises to $195 million by 2026. After that, the credit could rise by no more than 5% a year.
- Adds provisions of LB 723, which avoids a $200 million drop in state income tax credits for property taxes paid for K-12 schools. The credit for tax year 2022 is $548 million. It is scheduled to rise to $561 million for tax year 2023. But the credit was scheduled to drop by nearly $200 million in 2024, which necessitated LB 723, according to its sponsor, Albion Sen. Tom Briese. It could rise by no more than 5% a year after that.
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