Nebraska lawmakers remained broadly skepticalÌýof Gov. Jim Pillen's tax plan Thursday as they convened in Lincoln for the first day of the special legislative session the governor called to push for property tax cutsÌý— which the Legislature intends to deliver with or without elements of Pillen's plan, senators said.
After portions of Pillen's proposal to cut property taxes by as much as 50% emerged in pieces this summer through his town hall series, leaked documents and a news conference last week, Pillen's full, written plan was unveiled as a bill Thursday.
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Introduced on Pillen's behalf by Sen. Lou Ann Linehan of Elkhorn, offers the finalized details of the governor's sweeping plan to cut property taxes by more than $2 billion, funded by $400 million in spending reductions, retooling $910 million worth of existing tax relief programs and the elimination of numerous exemptionsÌý— the component of Pillen's proposal that lawmakers have blasted as a "reverse Robin Hood scheme."
The would incrementally eliminate local governments' taxing authority while implementing the state's 5.5% sales tax rate on previously untaxed goods and services, including candy and soda; real estate, accounting, tax preparation, marketing and investment advice services; taxi and other transportation services; and car repairs.
LB1 would place a 4% tax on real property maintenance and repairs, plus a 2% tax on the purchase and repair of agricultural and manufacturing machinery.
The bill would also hike so-called sin taxes. A gallon of alcohol purchased from a manufacturer, now taxed at $3.75, would be taxed at $14.50 under Pillen's plan, while the tax on cigarettes would jump from 64 cents a pack to $1.64. The e-cigarette tax rate would jump to 30%, along with the tax on consumable hemp products.
Pillen's plan, which could be subject to a public hearing as soon as Monday, aims to relieve long-simmering property owners who have watched in the last decade.
But the plan's reliance on increased sales taxes has drawn steady opposition from lawmakers, who rejected a tax relief package in April that also relied on sales tax hikes to deliver property tax cuts.
Pillen has long maintained optimism that lawmakers will deliver "transformational" property tax relief this year.
But mere hours into the special legislative session Thursday, it remained clear that Pillen's proposal does not have the support of enough senators to become law.
Some legislators filed procedural motions on the bill minutes after it was filed, signaling an eventual filibuster that would require 33 votes to overcome in Nebraska's 49-member, single-house Legislature.
"I'm fully in agreement that we need to do something about property taxes," said Sen. Ray Aguilar of Grand Island. "But the method that he's chosen for that is not something I can support."
Aguilar, a conservative whose vote Pillen would likely need for his plan to pass, said he hopes lawmakers can cobble together a property tax relief package that is "fair and equitable to all the taxpayers of Nebraska."
"I don't think this pending proposal is fair to all taxpayers," he said of Pillen's plan, which would cut the governor's own tax bill by nearly $1 million if it becomes law.
Sen. Jane Raybould of Lincoln, a former city councilwoman, offered a similar assessment.
"Right now, what the governor has put out is not equitable," she said. "It puts the burden squarely on our hardworking Nebraska families. This is the last thing they need, this is something I will object to each and every day I'm here.
"It's giving the wealthiest landowners another pass. This is not how we do good policy in the state of Nebraska."
Sen. John Fredrickson of Omaha pledged to champion plans that "focus relief to those who are most in need of that relief, people who are in crisis or at risk of losing their homes, for example."
"Nothing in the bill does that," he said.
It wasn't the only bill introduced Thursday, though.
Lawmakers , including bills that would legalize online sports gambling, provide tax credits to renters,Ìýend the costly Perkins County Canal Project and implement the radical "EPIC Option" tax proposal that failed to qualify for November's ballot.
"I am optimistic that we're going to get something out of this session," said Sen. Tom Brandt of Plymouth, a conservative who worked with a bipartisan group of lawmakers on , which would tweak the formula that provides state aid to public schools, which are primarily funded by property taxes.
"It's an alternative," Brandt said. "All of this stuff is. So if we drop 80 bills as a body, you can get pieces of parts out of this. And the governor has indicated he is open to that. He knows their ideas probably won't be the final ideas."
Lawmakers also offered legislation that would alter the state's income tax policy that Pillen sought to protect when he left income tax out of the scope of the special session.
Income, property and sales taxes make up the "three-legged stool" that defines state revenues and has grown increasingly reliant on property taxes as lawmakers in recent years.
In the fiscal year that ended June 30, the state's total net tax revenues included $3.6 billion in sales taxes, $4.2 million in income taxes and $5.1 billion in property taxes. Pillen has repeatedly misrepresented those figures as he has pitched his plan to residents and the media.
Income tax revenues are projected to drop by $1 billion by 2027.
Among other bills introduced Thursday:
DELAYED REDUCTION OF TAX CUTS: Raybould offered a bill (LB10) that would slow the income tax rate reduction previously passed by the Legislature in 2023.
Currently, Nebraska’s income tax rate for single individuals earning more than $30,000 per year — the highest tax bracket — is set to drop from 6.84% to 3.99% by 2027. Under Raybould’s proposal, the state income tax rate for highest earners would be reduced more gradually until 2030.
The corporate tax rate for companies earning more than $100,000 annually, which under a 2022 law will drop from 7.25% to 4.55% in 2026, would also be phased over a longer period. Raybould’s plan would see the corporate tax rate reach that lower level in 2029.
“The governor said everyone should be involved and every group should share in some of the burden,†Raybould said. “This is one way of providing a more equitable way of putting forth property tax relief.â€
Raybould said slowing the reduction to the original rate passed by lawmakers in 2022 would allow the Legislature to model how the tax cuts would affect state revenue into the future.
The bill is similar to legislation (LB1372) introduced by Brandt last year, Raybould said, which estimated the state could recoup $250 million in tax revenue that could be used to lower the tax burden for property owners.
Sen. Carol Blood of Bellevue, meanwhile, introduced a bill (LB7) that would create a fifth income tax bracket for individuals earning more than $250,000 and married couples who earn more than $500,000. The highest-earning Nebraskans would pay 9% in state income taxes under Blood’s plan.
Individuals making less than $3,000 a year would pay an income tax rate of 2.46%; those earning between $3,000 and $18,000 would pay 3.51%; and those making between $18,000 and $29,000 would see their tax rate drop gradually until both brackets were 3.99% beginning in 2027.
EXCISE TAX FOR ONLINE PURCHASES: Sen. Jana Hughes of Seward introduced a bill (LB19) that would implement a 2% excise tax on sellers of goods purchased online, by mail or phone, or through other electronic methods.
Hughes said the bill aims to create a new revenue stream for the state for purchases that aren’t made at brick and mortar stores in Nebraska.
“Those entities are not paying property taxes, they are not supporting schools, they are not paying employees here,†Hughes said. “Those businesses are not contributing to Nebraska’s economy.â€
Purchases made online or by phone at Nebraska-based stores where the item is picked up would not be subject to the tax, nor would items purchased in-store but then delivered later, like furniture.
The excise tax would be tacked on for products that are ordered online and delivered, however.
Any item that is currently exempt from sales and use taxes in Nebraska — such as food — would remain exempt from the excise tax.
Hughes said the bill could generate an estimated $120 million in new revenue for the state that could be used for property tax relief.
“If that encourages people to go local and brick and mortar, awesome,†she said.