Nebraska governor joins state senators and tax groups in touting income tax cuts

LINCOLN — Using “tax day” as a backdrop, Gov. Jim Pillen joined some key state senators and two tax groups Tuesday in touting legislative proposals that aim to reduce Nebraska’s top income tax rate to 3.99% by 2027.

Tuesday was the deadline to file state and federal income tax returns, and the governor and others maintained that the state needs to be more competitive when it comes to taxes.

“It’s really important that we have a tax policy that gets us in the game,” Pillen said.

State ranks 29th

Right now, the Tax Foundation ranks Nebraska 29th in overall business tax climate.

But a bill introduced on behalf of the governor, Legislative Bill 754, would reduce the state’s top personal income and corporate rates to 3.99%, which, if that happened immediately, would place Nebraska at No. 12, advocates said Tuesday.

“For far too long we have found ourselves uncompetitive with other states when it comes to taxes,” said State Sen. Lou Ann Linehan, the chief sponsor of LB 754.

“We’re finally going to be able to go where we’ve been trying to go for the past seven years,” Linehan said, due to record-high fund surpluses.

She said that unless Nebraska cuts taxes, it will lose young people and retirees to lower tax states — a view that is disputed by some groups.

Representatives of the Platte Institute, a free-market think tank, and the conservative Americans for Prosperity joined the governor in promoting the income-tax package, as well as a companion bill to provide property tax relief, LB 243.

Some dispute wisdom of deep tax cuts

But other organizations have doubts over whether lower taxes will inspire more residents to stay or relocate to Nebraska and concerns about whether the state can afford the two tax-relief packages, along with Pillen’s proposed increases in state aid to education.

The Legislature’s Fiscal Office has estimated that the two bills will reduce state tax revenue by about $5.5 billion over the next six years. In addition, the school aid changes include establishing a $1 billion “Education Future Fund” and providing about $300 million each year to increase special education funding and provide a $1,500-per-student allocation to mostly rural districts.

The OpenSky Policy Institute has said that such deep cuts in revenue and increases in state aid are unwise given the shaky state of the economy and may be unsustainable, requiring cutbacks in state services and programs.

The think tank also slams LB 754, saying that three-fourths of the personal income tax benefits will go to the top 20% of Nebraska wage earners. Meanwhile, OpenSky says, the bottom 20% of workers would see cuts averaging $5. Plus, the organization said, more than 80% of the corporate tax cuts would go to out-of-state companies.

People move for jobs, not taxes

The University of Nebraska at Omaha Center for Public Affairs Research, using U.S. Census data, has said that the overwhelming reason people move out of Nebraska is not taxes, but for a new job or for a job transfer.

Few people surveyed cited taxes, the UNO center reported. Instead, 53% cited amenities and quality of life as “very important” in determining why they moved away, and 47% cited values or culture of a new community.

The two tax bills advanced easily from first-round debate, though both Linehan and Albion Sen. Tom Briese, another key senator on tax proposals, have said the bills will need to be pared back.

Briese said his calculations put the property tax proposal, along with the increases in state aid, at about $3.4 billion in tax relief over six years, which is about $500 million less that what’s estimated from the income tax package.

Rural senators want similar relief in property, income taxes

He and other rural senators have insisted that any cuts in state income taxes — which have been sought by state business interests for years — must result in a similar amount of cuts in property taxes, the top priority of farmers and ranchers.

Briese added he doesn’t expect that the increase in school aid will result in a dollar-for-dollar reduction in property taxes because some school districts will take advantage of the extra funding.

“I would call upon school boards and school administrators to help us make sure that money yields property tax relief,” Briese said.

An updated fiscal note on LB 754, which includes the income tax cuts, projected a $3.9 billion impact over six years. A new fiscal note for LB 243, the property tax bill, came in at $1.5 billion.  If you add the impact of the state aid increases, $1.8 billion over six years, that puts the property relief at about $3.3 billion to $3.4 billion over six years.

Both Linehan and Pillen said Tuesday that means the income tax proposal, and possibly the property tax bill, will have to be pared back. Much, they said, will depend on a new economic forecast to be delivered April 27.

‘We’re all pretty close’

“We’re all pretty close,” Briese said, adding that even if pared back slightly, the tax relief that results will be “historic.”

The top priority of the income tax package, both senators have said, is to reduce the state’s top income tax rate from the current 6.64% to 3.99% which would match the top rate recently set in Iowa.

“We don’t want to be beaten by Iowa,” Pillen, a former Nebraska football player, said Tuesday.