Nebraska lawmakers moved forward on a bill cutting the state’s top income tax rate by nearly one-third Thursday, after jettisoning some other proposed income tax changes.
State Sen. Lou Ann Linehan of the Omaha area, the Revenue Committee chairwoman, offered the amendment to narrow LB754, saying the state cannot afford all of the income tax cuts that had been packaged into the measure earlier.
But she said the slimmed-down bill would still return money to taxpayers and make the state more competitive in attracting people and businesses. It would provide about $3.3 billion worth of income tax cuts over six years.
“This plan by the governor is huge and it will touch every Nebraskan,†she said.
Lawmakers approved her amendment before advancing LB754 to the last of three rounds of consideration on a 37-4 vote. Linehan had introduced LB754 on behalf of Gov. Jim Pillen. It represents one piece of his tax cut and school aid plan.
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As advanced Thursday, the bill would cut Nebraska’s top individual and corporate income tax rate to 3.99% over six years, speed up full exemption of Social Security benefits, exempt some federal government pensions and offer tax credits for limited numbers of low-income parents and child care providers.
The changes would reduce state revenues by nearly $379 million during the next two years, down from the $558 million price tag on the first-round version of the bill.
Critics of the measure, however, questioned whether Nebraska will be able to afford the income tax cuts provided under LB754, along with a package of property tax cuts, in future years.
Sen. Jane Raybould of Lincoln pointed to signs of potential weakness in the state’s economy. She called for adding some triggers to the bill, which would halt progression of future tax cuts unless certain fiscal targets are met.
“Why do we want to kick the can down the road and tie the hands of future legislators?†she asked.
Others criticized the bill for giving the bulk of the tax cuts to wealthier Nebraskans. Sen. George Dungan of Lincoln said the lowest-paid Nebraskans would end up with an average of $5 in tax cuts under the bill. He also said that an estimated 83% of the corporate tax cuts would go to non-Nebraska residents.
As advanced, LB754 would ratchet down the top rate for individual and corporate income taxes to 3.99% by 2027, bringing down the rate paid by taxpayers in the top two individual tax brackets and both corporate brackets.
The top individual rate is 6.64% this year, and the top corporate rate is 7.25%. Both are slated to drop to 5.84% by 2027 under a law passed last year.
At least half of Nebraska income tax filers could save money with the 3.99% tax rate, but the package would offer little for Nebraskans in the middle- to lower-income tax brackets.
Limited numbers of low-income parents and child care providers could benefit from another provision of the bill. That provision would allow up to $15 million a year of tax credits for parents with children in child care — enough to help 15,000 children at most.
It also would offer $2.5 million a year in credits for people who donate to child care programs and another $7.5 million in credits for child care programs and child care workers. The first-round version of LB754 would have allowed $10 million for each of those two credits.
Other components of LB754 would make Social Security benefits fully exempt from income taxes by next year — one year earlier than under current law — and make benefits paid by the Federal Employees Retirement System or the Civil Service Retirement System exempt as well.
Linehan’s amendment dropped provisions that would have affected smaller groups of taxpayers, including one that would have benefited people who itemize deductions on their federal income tax returns and who hit the federal cap on deducting state and local taxes. Another would have exempted nonresidents from paying Nebraska income taxes on work done while in the state for 15 or fewer days in a year.