Nebraska advances sweeping income, property tax package

March 31, 2022 GMT

LINCOLN, Neb. (AP) — Nebraska lawmakers gave initial approval Wednesday to multi-pronged tax package despite concerns that it would send the biggest benefits to high income-earners.

The bill would cut the top personal and corporate income tax rates, create a new tax credit for property owners and accelerate the phase-out of a Social Security income tax that lawmakers approved last year. It advanced, 44-0, through the first of three required votes Wednesday night, although some lawmakers said they would push for more changes.

Supporters said the measure would make Nebraska more attractive to seniors and businesses and competitive with its neighboring states. Nearly all of Nebraska’s neighbors have lower top income tax rates, and several including Iowa also exempt Social Security income from taxation.

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“We need to have a tax climate that doesn’t scare people off,” said Sen. Lou Ann Linehan, chairwoman of the tax-focused Revenue Committee.

But some lawmakers argued against parts of the package that they see as a giveaway to high income-earners and out-of-state corporations that would likely do business in Nebraska regardless.

Sen. Machaela Cavanaugh, of Omaha, criticized the decision to squeeze all of the different tax bills into one package.

She noted that lawmakers have already shown strong support for some of the proposals as stand-alone bills and gave them initial approval earlier in the session, but the corporate income tax cuts are more controversial.

“It is reckless, it is irresponsible, and no one else would ever get this many bites at the apple in one session,” Cavanaugh said.

Supporters countered that merging the bills into one package is the only way to build a coalition that can pass it.

“It’s a compromise that’s a huge win for taxpayers,” said Sen. Tom Briese, an Albion farmer and a leading advocate for lowering property taxes.

The debate comes as time dwindles in this year’s legislative session, which is tentatively set to end in mid-April. Lawmakers have nine working days left before they adjourn for the year.

The income tax proposal would lower the top individual tax rate from 6.84% to 5.84% by January 2027. The top corporate income tax rate would drop from 7.5% to 5.84%.

Supporters of the measure note that Nebraska’s top rate applies to single taxpayers with taxable incomes as low as $31,751 and married couples with taxable incomes of $63,501. Taxpayers who earn more than those amounts would get a tax break under the bill, but the highest income earners would enjoy a much larger benefit.

Nebraska had 8,811 taxpayers who earned at least $1 million in 2018, according to state Department of Revenue data provided to lawmakers.

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Those taxpayers had adjusted gross incomes totaling $75.1 billion — more than half of all the income reported in Nebraska — yet they paid just 10% of the state’s total income taxes. Many of them did so by claiming credits and deductions to lower their taxable income.

The bill would also provide a refundable income tax credit for the local property taxes that businesses and homeowners pay to community colleges. Lawmakers would put $50 million into the credit in its first year and $100 million the following year, which the state would divide among all property owners.

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