‘Transformative’ Nebraska tax cut package advances after stumbling twice | Politics

LINCOLN — The third time proved a charm Wednesday for a tax cut package that backers called “transformative” and a “once-in-a lifetime opportunity.”

Nebraska lawmakers advanced the package on a 44-0 vote, after debating and approving pieces separately. The vote on Legislative Bill 873 represented a marked turnaround from last week, when opponents twice blocked other attempts to advance the tax package.

On Friday, backers fell one vote short of ending a filibuster against the proposal. Earlier in the week, opponents stopped an attempt to attach the package to a different bill.

On Wednesday, State Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chairwoman, urged colleagues to pass the package to move Nebraska forward. Other supporters argued that it was needed to keep people and businesses from leaving the state for places with lower taxes.

Several described the package as a unique opportunity made possible by the state’s strong revenue growth over the past couple of years and its record-high coffers.

People are also reading…

“This package of tax relief truly is transformative and it benefits all Nebraskans,” said Sen. Tom Briese of Albion. He later explained that some Nebraskans would benefit indirectly, through increased economic activity in the state.

The proposal would ratchet down the state’s top corporate and individual income tax rates over five years, expand income tax credits offered to property taxpayers and phase out income taxes on Social Security benefits.

Opponents raised concerns about the impact of the package on state tax revenues in future years, particularly after the state is no longer getting federal pandemic recovery funds.

Revenue Department officials estimate the package would reduce state revenues by $565 million by fiscal year 2024-25. The OpenSky Policy Institute calculated the reduction at about $900 million by fiscal year 2027-28, when all pieces of the package are fully implemented.

“It is reckless, it is irresponsible,” said Sen. Machaela Cavanaugh of Omaha. “They are making a choice to bankrupt the state.”

Some senators criticized the package for leaving out large numbers of Nebraskans.

The personal income tax cuts would leave out single filers making less than $40,676 or married filers making less than $81,352, unless they get Social Security benefits. The property tax credits would leave out anyone who does not own property. The corporate income tax cuts would leave out businesses making less than $100,000 of taxable income.

Still, four of the five pieces of the package drew strong support when lawmakers considered each separately.

The weakest support was for the proposal to ratchet down the top corporate income tax rate to 5.84% over five years. Under current law, the top corporate rate is 7.5% for this year and is slated to drop to 7% next year.

Sen. John Cavanaugh of Omaha said that more than 80% of the corporate income tax cuts would go to businesses based outside of Nebraska. Corporate taxes are based on sales in the state, not location, so lowering the top rate would not be an incentive for businesses to come to Nebraska, he said.

But Sen. Mike Flood of Norfolk said the top corporate tax rate is one factor businesses consider when deciding where to locate. Linehan argued that lower corporate taxes benefit people who have money in mutual funds, retirement plans and other investments that include equities.

Lawmakers approved the corporate tax change on a 32-12 vote, but voted 43-0 to approve a reduction in the top individual tax rate. The rate would ratchet down to 5.84% over five years. The top individual rate is 6.84% now.

Another popular piece of the package would help property owners by creating a new refundable income tax credit equal to a portion of what they pay in community college property taxes.

The proposed community college credit program would start at $50 million this year and ramp up to $195 million by 2026. At full implementation, the program could offset about three-quarters of community college property taxes.

The new credit program would be similar to the LB 1107 program created two years ago, which offsets a portion of what property owners pay in school property taxes.

The LB 1107 program will provide up to $548 million worth of credits this year, equal to about one-quarter of school property taxes. The tax package advanced Wednesday would set the size of that credit program at $560.7 million for 2023.

Once reaching the maximum value set in the package, the school and community college credit programs would be allowed to grow by the same percentage that property valuations in the state grow, up to a 5% maximum.

The final piece of the package would phase out income taxes on Social Security benefits in four steps.