Nebraska lawmakers looking to give money back to taxpayers will have two very different options to consider in the comingÌýweek.Ìý
One would give more money back to taxpayers while cutting top individual and corporate income tax rates. The changes would be phased in over five years.
The other would give $200 cash to every Nebraskan this year while cutting the tax rate on a middle-income tax bracket starting next year.Ìý
Both options have been introduced as amendments to LB939, introduced by Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chairwoman. Lawmakers are slated to debate the bill again Tuesday.
As advanced on first round, the bill would reduce the top individual income tax rate by 14.6% over three years and cut the top corporate rate by 22% over four years. It would not make any property tax changes or send money to lower- and middle-income Nebraskans.
People are also reading…
Linehan worked on the property tax amendment with Sen. Tom Briese of Albion. She said she backed the property tax change to help win support for LB939 and overcome a potential filibuster.
"We're trying to build a package that we can get to 33 (votes)," Linehan said. "We've got to keep this rolling."
The bill cleared the first of three rounds of debateÌýon a 40-1 vote but several senators said they backed it only to keep the bill in play until the state’s fiscal picture became clearer. Since then, the fiscal picture has brightened, with the state now projected to collect $775 million more than previously expected for the two years ending June 30, 2023.
Briese said many lawmakersÌýand constituents put a high priority on easing property taxes. The amendment would further that goal by allowing property owners to claim refundable income tax credits equal to a portion of what they paid in community college property taxes.
The new credit program would be similar to one created by LB1107 two years ago. The existing program offsets a portion of what property owners pay in school property taxes. For this year, the LB1107 credit program will offer $548 million worth of credits, equal to about one-quarter of school 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 aboutÌý three-quarters of community college property taxes.
"What we're putting in place is meaningful and substantial tax relief for all Nebraskans but it's done in a fiscally responsible manner," Briese said.Ìý
The Linehan-Briese amendment would still ratchet down the top corporate and individual income tax rates to 5.84% but at a slower pace. Under current law, the top corporate rate is 7.5% for this year and is slated to drop to 7% next year. The top individual rate is 6.84% now.
With the amendment, the bill would reduce state revenues by an estimated $74.5 million for the fiscal year ending June 30, 2023. That's about $10 million more than under the current version of the bill.
By 2027, after all of the pieces are fully implemented, it would shrink state revenues by about $660 million a year.
Sen. John Cavanaugh of Omaha introduced the other amendment. It would provide every Nebraskan with a $200 debit card this year at a cost of about $400 million but take a more conservative approach to reducing income taxes.
Instead of cutting the top rate, it would take the next lower rate from the current 5.01% down to 4.01% in one year. The change would reduce state revenues by an estimated $97 million.
Cavanaugh said his approach would achieve the goal of returning money to taxpayers, while ensuring that the state does not overextend itself on tax cuts. He said it also provides more relief to middle-income Nebraskans than the current version of LB939.
"When it comes to things like this, we should do it slowly," he said. "It doesn't mean we can't come back in the future and take another step."
Cavanaugh's amendment would benefit single filers making more than $28,086 a year and married filers making more than $56,182, after accounting for personal exemptions and standard deductions.
Changing the top tax rate, as proposed in LB939, would benefit single filers making more than $40,676 and married filers making more than $81,352.
Cavanaugh and others have objected that LB939 directs most of the tax cuts to the wealthiest Nebraskans and leaves out large number of lower- and middle-income taxpayers. But Linehan has said that cutting the top tax rate is key to making Nebraska competitive with neighboring states.