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

By: - March 30, 2022 7:53 pm
Floor of the Nebraska Legislature

State senators debate on the floor of Nebraska’s unique Unicameral Legislature at the State Capitol. (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.

State Sen. Lou Ann Linehan
State Sen. Lou Ann Linehan of Elkhorn
(Courtesy of Unicameral Information Office)

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.

Sen. John Cavanaugh
Sen. John Cavanaugh of District 9 speaks on the floor of the Nebraska Legislature. (Rebecca S. Gratz for the Nebraska Examiner)

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.

Out-of-state corporations

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.

Sen. suzanne Geist
State Sen. Suzanne Geist of Lincoln. (Courtesy of Unicameral Information Office)

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.

On Friday, 13 senators voted “present, not voting” in protest for what they called an unannounced and improper attempt to amend the tax proposals into another bill. On Wednesday 10 of the 13 joined in advancing the bill. 

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.

State Sen. Brett Lindstrom on the floor of the Nebraska Legislature. (Courtesy of Unicameral Information Office)

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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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.

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