Debate begins on ‘massive’ tax bill proposed by governor to reduce property taxes

LINCOLN — Debate on Gov. Jim Pillen’s epic and controversial property tax relief plan began Wednesday, with advocates saying it will result in a net tax savings and opponents saying it’s a tax shift that will hurt middle- and low-income families.

The plan calls for up to a 1-cent increase in state sales taxes, hikes in taxes on cigarettes, vaping products and hemp gummies, and new taxes on soda pop and candy, state lottery tickets and veterinary bills for pets.

$730 million in increased taxes

That would generate an additional $730 million in revenue, according to Pillen administration estimates, which would be sent to K-12 school districts to reduce local property taxes by an average of 30%, when coupled with other recent tax relief measures.

After an initial four hours of debate, it wasn’t clear that the plan could generate the 33 votes from the 49-seat Unicameral to fend off a filibuster and advance Legislative Bill 388 from first-round debate.

One senator adamantly opposed to the bill, Steve Erdman of Bayard, expressed doubts about that, given that supporters of the bill were asking him to join them in voting for cloture, a measure to end debate, so the bill could move forward.

“This is not the answer,” said Erdman, the main advocate in the State Legislature for the EPIC Option Consumption tax, a replacement for sales, income and property taxes. Senators running for re-election, he added, would get pushback from voters if they support LB 388.

Before debate ended Wednesday night, Elkhorn Sen. Lou Ann Linehan, the main sponsor of the governor’s bill, asked for a “pause” in the debate until next week so that some drafting errors in the bill could be corrected.

“If you come up with some brilliant plan where we don’t have to raise sales taxes, I’m all in,” Linehan told her colleagues.

That was an apparent recognition of the opposition to the tax increase contained in LB 388 voiced by several lawmakers, two watchdog groups, several state business groups and even a former governor. 

During the debate, Linehan said that the bill would address two long-lingering problems in the state — local property taxes that rank among the top 10 highest in the country, and Nebraska’s historically low state support for K-12 education. 

The senator, who chairs the Legislature’s Revenue Committee, said the doubling of per-pupil foundation aid to local schools via LB 388 — a boost from $1,500 to $3,000 per student — would push Nebraska’s national rank in state support for local education to eighth highest nationally.

Doing nothing will generate anger

Because of recent inflation in home prices, Linehan said, school districts such as Millard, Norris and Lincoln soon won’t qualify for state equalization aid, which will force districts to replace that lost revenue with higher property taxes.

“So we can stay where we are, and there will be a lot more people angry about property taxes,” she said.

But opponents of the bill, over and over, said their constituents oppose an increase in sales taxes and that other solutions to lower property taxes should be pursued. 

“There is absolute agreement on the problem, but there’s sharp disagreement about the solution,” said Lincoln Sen. Danielle Conrad. 

Among the alternatives mentioned: pausing the gradual reduction in state income taxes passed last year, to use that revenue to defray property taxes; or moving forward only with Pillen’s idea to “front-load” the current income tax credits offered on property tax payments which, it was revealed this week, 65% of patrons in the Omaha School District don’t claim, thus providing more people with the tax break.

‘A tax increase’ no matter how you spin it

Bellevue Sen. Carol Blood also floated the idea of a “luxury tax,” on very expensive items that only the rich can afford.

“This is a tax increase. I don’t care how you want to spin it,” said Lincoln Sen. Jane Raybould of LB 388.

She added that it was also regressive because low-income Nebraskans pay more in sales taxes, as a percent of their income, than do the wealthy.

Raybould argued that LB 388 should be put off for a year, to let the property tax relief law passed last year go fully into effect. Fellow Lincoln Sen. George Dungan said that such a “massive” change in tax policy needed more consideration.

A tale of competing projections: Governor’s Office, OpenSky figures differ

Before debate began Wednesday, a group of Nebraska chambers of commerce, including the State Chamber, reiterated that they opposed LB 388 because it is a tax shift that also increases taxes.

They join two think tanks that don’t often agree, the Platte Institute and OpenSky Policy Institute, as well as the conservative Americans for Prosperity, in opposing the bill. An unusual coalition of senators on the far left of the political spectrum and far right were among those fighting LB 388.

Meanwhile, one influential group, the Nebraska Farm Bureau, announced its support Wednesday for Pillen’s proposal, saying it would rebalance the three main taxes in the state.

Right now, total property taxes statewide generate about $5.3 billion in revenue a year, compared to about $2.4 billion in sales taxes and $3.6 billion in income taxes.

“Our three-legged stool is completely out of balance,” said Omaha Sen. Kathleen Kauth, a supporter of LB 388, referring to the three tax sources.

State lawmakers involved in farming said the bill would help alleviate the higher taxes on agricultural land caused by years of steep increases in land prices and valuations.

“This is a very, very meaningful property tax reduction,” said Plymouth Sen. Tom Brandt.

Supporters of the bill worked Wednesday to convince doubters that the bill wasn’t a tax shift but a net tax reduction. They passed out projections of the financial impact on individual taxpayers.

For instance, the owner of a $300,000, four-bedroom townhome in Hickman would see a net tax savings of $1,041 because of a reduction in property taxes of $1,359 and additional sales taxes of $319 for the year. Even a renter, paying $2,000 a month in rent with an income of $45,000, would see a net $69 savings in a year, proponents said.

But Sen. Terrell McKinney, who represents North Omaha, said he doubted whether his constituents who rent homes or apartments would see a benefit from LB 388.

That squared with projections made by OpenSky, which said that the 5% of Nebraskans with incomes over $252,600 will pay less in taxes overall via the plan, while eight in 10 Nebraskans, with lower incomes, will pay more.

Bill had to be re-advanced

Some opponents of LB 388 criticized the speed at which the bill was drafted, which resulted in some errors in drafting and required the bill to be re-advanced on Tuesday.

Others said they’ve yet to see a draft of another major portion of the Pillen plan — a “front loading” of an existing state income tax credit on property taxes paid.

Currently, taxpayers have to claim the credit on their state income tax form, delivering a delayed credit that many taxpayers don’t claim.

Pillen’s plan would have it reflected as a reduction in the property tax statement that goes out each fall, thus “front loading” the tax break.

But that aspect of the plan must go before the Legislature’s Education Committee, which has yet to act on that provision, with eight days, as of Thursday, left in the 2024 session.