Governor’s income tax package advances from Revenue Committee

LINCOLN — A legislative committee advanced a wide-ranging income tax reduction bill Thursday amid questions about whether the state could afford it.

On a 7-1 vote, the Legislature’s Revenue Committee moved a much-amended Legislative Bill 754 — introduced at the request of Gov. Jim Pillen — out of committee and on to debate by the full, 49-seat Unicameral.

State Sen. John Arch, the Speaker of the Legislature, said he planned to bring up the tax bill and an accompanying bill aimed at reducing property taxes for floor debate, “sooner rather than later.”

Halfway point, no bills passed yet

The 90-day legislative session is now at its halfway point, and amid a flurry of action-delaying filibusters, has yet to pass one bill.

Elkhorn Sen. Lou Ann Linehan, who chairs the Revenue Committee, said Thursday she believes she has 33 votes to overcome an expected filibuster on the tax bill. She said Nebraska needs to cut its income tax rates to become competitive with its neighbors in attracting jobs and keeping people from moving away.

Under LB 754, the state’s top individual and corporate income tax rates would be dropped to 3.99% by tax year 2027. The top two brackets are now 6.8% and 6.27%.

“We have got to move,” Linehan said, citing Iowa’s recent action to adopt a flat income tax rate of 3.9%.

Lincoln Sen. George Dungan, the lone “no” vote on the Revenue Committee, said that he remains concerned that such a deep cut in income taxes and the revenue it generates would harm spending on K-12 education and other state programs.

“I think we have to be careful,” Dungan said.

Concern about affordability

Linehan, after the committee’s vote, acknowledged that affordability will be a big point of contention during floor debate.

She added that the committee’s next step will be to craft and advance a property tax relief measure that will provide the same amount of relief from real estate taxes. Farm groups have insisted that property taxes should be cut dollar-for-dollar with any income tax reductions.

Budget officials with the Pillen administration have insisted that the state can afford the income tax cuts — projected to reduce state revenues by $735 million a year by 2028-29 — a similar sized reduction in property taxes and the governor’s $1 billion plan to increase spending on K-12 schools.

An Omaha-based, free market think tank, the Platte Institute, hailed the advance of the income tax bill Thursday, saying it would “increase growth and prosperity in every corner of the state.”

“The need for a more competitive tax code in our state is long overdue,” said Jim Vokal, the Platte Institute’s CEO.

Meanwhile, a Lincoln-based group, the OpenSky Policy Institute, has raised alarm about the size of the tax cuts proposed by Pillen, saying that it will “quickly drain” the state’s fund surplus.

Rebecca Firestone of OpenSky said Thursday that the new tax breaks will mostly benefit “the wealthiest Nebraskans and out-of-state corporations” and doesn’t “help working families and small businesses facing economic challenges.”

Other bills amended into LB 754

The Revenue Committee moved several other bills into LB 754 over the past two days, in part to increase support by providing tax breaks aimed at lower-income Nebraskans.

Among the bills amended into the tax package were:

• LB 318, which would provide $35 million in tax credits for child care expenses, based on income, and for workers in child care facilities. Lincoln Sen. Eliot Bostar said it would help address the shortage of workers in such facilities and help low-income families afford child care.
• LB 641, introduced by Omaha Sen. Kathleen Kauth, which would phase out state income taxes on Social Security.
• LB 38, from Bellevue Sen. Carol Blood, which would give persons who are in the federal retirement system — and get no Social Security — the same tax break on their retirement benefits.