Proposed tax cut bills trimmed, then advanced to final round debate

LINCOLN — State lawmakers adjusted, then advanced to final-round debate, two tax relief measures pushed by Gov. Jim Pillen that have been described as “transformative” and “historic.”

Together, the two tax cuts, along with Pillen’s increased state aid to schools, would amount to about $6.4 billion, according to the governor’s office, in tax relief over the next six years. It has been billed as moving Nebraska from the middle of the pack in taxation nationally, to among the lowest 15 states.

“We’re on track to get historic tax relief and educational funding reform,” said State Sen. Tom Briese of Albion, who sponsored the property tax package.

Backers of the two tax measures, Legislative Bills 243 and 754, rejected arguments that the state wouldn’t be able to sustain such a large loss of tax revenue and would eventually be forced to cut state services or raise taxes to afford them.

Concerns cast aside

They also spurned concerns from opponents that the income tax cuts mainly benefitted the most wealthy Nebraskans and corporations based out of state.

“This is not just for rich folks,” said State Sen. Lou Ann Linehan of Elkhorn, who sponsored the income tax bills. “This plan from the governor is huge, and it will touch every Nebraskan.”

LB 234 would increase state tax credits provided against property tax payments and takes funding of the state’s six community colleges off the tax rolls, altogether providing more than $1.3 billion of the tax relief.

Local property tax requests by public schools are also expected to decrease under Pillen’s plan due to increased state aid to schools via a new, $1 billion “education future fund,” plus $250 million in additional yearly funding.

The rest of the tax relief, about $3.2 billion over six years, would come via LB 754. It would gradually reduce the state’s top corporate and personal income tax rates to 3.99% by the 2027 tax year, as well as phase out state taxes on Social Security and, under an amendment from Bellevue Sen. Carol Blood, on federal pension payments.

Cutting state income taxes has been a longtime goal of state business groups, who have argued that Nebraska’s top income tax rate of 6.64% is uncompetitive with neighboring states that are also cutting taxes. Iowa, for instance, is headed for a flat tax of 3.9% by 2026.

Child care tax credits trimmed

To fit within state budget forecasts, both tax bills had to be slimmed down.

Under an amendment to LB 754 adopted Thursday, proposals to cut income taxes on business assets and research expenditures, and temporary employees, were dropped, along with increasing a deduction on state and local taxes paid.

A package of tax credits for child care expenses and providers had to be trimmed back from an original $35 million a year, to $25 million a year.

Lincoln Sen. Eliot Bostar, who sponsored the breaks for child care expenses, said it hurt to reduce such aid for families who are struggling with child care expenses, but LB 754 had to be pared back.

“My goal is to make Nebraska the best place to raise a family,” he said. “I view this (amendment) as a beginning.”

There was some drama over the property tax bill, which places a new cap of 3% on growth in total spending, with some exceptions. The cap could be exceeded by a vote of 60% of a school district’s voters or 70% of a school board’s members. Critics called the 60% requirement for the public vote “undemocratic.”

26 school districts projected to lose funds

Modeling done by the OpenSky Policy Institute projected that 26 school districts across the state would be net losers of state aid under the cap, with the biggest losers being three fast-growing school districts in suburban Omaha: Bennington, Gretna and Elkhorn.

An amendment was drafted to resolve the concerns of the three districts, but filibustering, led by Omaha Sen. Machaela Cavanaugh, threatened to prevent the amendment from being debated and adopted.

With only a few minutes left in the debate over LB 243, Cavanaugh dropped her filibuster, allowing the amendment to be considered and approved.

“It was the right thing to do,” said the senator, who has led a session-long series of time-consuming filibusters in protest of a bill that would ban parents from seeking certain gender-affirming care for a child.

Cavanaugh said she knew that the amendment was needed by suburban school districts, adding, “I wanted to make them sweat.”

The Omaha Public Schools opposed LB 243, projecting a $14 million loss in revenue for the 2023-24 school year.  OPS officials have said the property tax savings via the governor’s school finance changes primarily benefit smaller, rural districts.

Lincoln Sens. Jane Raybould, Danielle Conrad and George Dungan led the opposition to the two tax-relief bills, arguing that they cut too deeply and that in future years, the state might be left short of funds to finance higher education, social service programs and aid to K-12 schools.

“This is a race to the bottom,” said Raybould, who questioned whether the tax cuts could convince companies or families to relocate here.

Cutting too much ‘has consequences’

“Cutting too deep, too fast has consequences,” said Conrad, a reference to the Kansas “experiment” a decade ago. The Kansas effort was projected to create 23,000 jobs via steep tax cuts.

Instead, massive losses in revenue caused Kansas to slash spending on roads, bridges and education and ultimately to reverse the cuts.

Dungan said that percentage-wise, wealthier Nebraskans will see a bigger tax break under LB 754 than lower-income families.

But amendments from Raybould that would have required economic “triggers” to be met before the income tax reductions could move forward, and another to require a pause and review of the cuts, failed. Also rejected was an amendment from Omaha Sen. Wendy DeBoer to extend a larger tax break to middle-class Nebraskans.

Conrad also argued that Nebraska’s biggest problem is a shortage of workers and that one of the best ways to address that would be to increase tax credits for children or child care expenses.

But her amendment to direct more of the child care aid in LB 754 to families was also defeated.