Higher-than-anticipated fiscal note may require trims in proposed income tax cuts

LINCOLN — An income-tax reduction package moving through the Nebraska Legislature may have to be “skinnied up” after its estimated fiscal impact came in much higher than anticipated.

A new fiscal note, released Friday by the Legislative Fiscal Office, estimates that Legislative Bill 754 will deliver $3.89 billion in tax cuts over its first six years, nearly $900 million more than previously thought.

State Sen. Lou Ann Linehan of Elkhorn, the main sponsor of the bill, said Friday that some of the tax cuts called for in the bill might have to be pared back so it fits within the state budget and so it matches, dollar-for-dollar, the tax relief provided by a package of property tax changes in a companion measure, LB 243.

“These packages, once we get the fiscal notes, we have to look at them again and see how they fit in the box,” Linehan said. 

Lawmakers have amended several different bills into both proposals, but updated fiscal notes — which estimate the projected financial impact of a measure — aren’t prepared until after a bill gets past first-round debate.

Both the income tax and property tax bills did that recently on identical 41-0 votes, with the updated fiscal note on the income tax proposal released Friday afternoon. The updated fiscal note on the property tax bill is still pending.

Albion Sen. Tom Briese, the sponsor of the property-tax measure, LB 243, said Monday that the two bills combined had a target impact of about $6.6 billion or $6.7 billion over six years, so something will have to give.

He estimated that LB 243 would have a fiscal note of about $3.3 billion over six years, so that means changes would be needed in the income tax proposal.

Linehan and Briese both agreed that preserving the cuts in personal and corporate income taxes are the highest priority in LB 754, as well as eliminating state tax on Social Security. Under the bill, the state’s top personal income tax rate and corporate tax rate would gradually fall to 3.99%.

Income tax cuts touted

Proponents say it’s a move to make Nebraska more competitive with neighboring states. Gov. Jim Pillen predicted it would move the state within the lowest 15 states in the country in terms of state taxes. Critics, though, point out that the income tax cuts impact only the highest tax brackets, and there’s little tax relief in LB 754 for low-income Nebraskans.

Linehan said she had questions about the accuracy of the new fiscal note. For instance, the latest fiscal note estimates that the cut in personal income taxes will be a $750 million a year tax break by 2028-29, which is substantially higher than an estimate in February, which projected the impact at $609 million.

The senator, who heads the Legislature’s Revenue Committee, which crafts tax proposals, said she planned to ask the Legislature’s Fiscal Office for more information about its latest fiscal note on LB 754.

Keisha Patent, director of the Fiscal Office, said Tuesday that the fiscal estimate rose because LB 754 was amended just prior to a committee hearing on the bill. That change, she said, increased the impact.

Linehan said if trims are needed, parts of LB 754 could be delayed. She said that perhaps a tax credit given to companies that provide child care programs could be pared back — something Briese said he would not support.

The rural senator said affordable child care is among the top three issues he hears about from constituents, right behind high property taxes and lack of affordable housing.

Linehan and Briese said they both want to see what the new fiscal note on the property tax bill reveals before making any decisions. They said the April 27 forecasts from the state economic forecasting board will also provide a clearer picture of the state’s future tax revenue and whether changes need to be made in this year’s tax bills.

Rebecca Firestone of the Lincoln-based OpenSky Policy Institute said her organization remains concerned about the state’s ability to withstand such a dramatic cut in state revenue without impacting other state services.

Pillen’s budget officials have insisted that the state has a healthy surplus of tax revenue and that a robust cash reserve will sustain the tax cuts.