A major package of income tax cuts and property tax relief fell short in the Nebraska Legislature on Friday.
But backers vowed to try again this session, with Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chairwoman, calling the tax measure’s failure “just a hiccup.”
Linehan said she was shocked that the filibuster-ending cloture motion on LB825 failed. The motion got 32 votes but needed 33 to succeed. Thirteen senators abstained on the vote and four were absent. Based on legislative practice, the bill will not return this year.
But Sen. Brett Lindstrom of Omaha, who introduced LB825, said the fight for tax relief is not over. He said he expects backers will find another legislative vehicle for the package of ideas.
LB825, as advanced to the second of three rounds of debate, would have phased out income taxes on Social Security benefits in four steps.
Tragedy strikes campaign to legalize medical marijuana in Nebraska
Watch now: Tax relief, opposition to mandates spark GOP governor debate
A surprise amendment offered Friday morning would have incorporated other tax proposals into the bill. The amendment would have ratcheted down the state’s top corporate and individual income tax rates and expanded income tax credits offered to property taxpayers.
People are also reading…
Lindstrom, a GOP candidate for governor, touted the package as the “biggest thing” in years and said Nebraska must make the proposed changes to compete with other states. But he said there will be more work on tax reform in the future.
Another supporter, Sen. Tom Brandt of Plymouth, said fears about the tax measures putting Nebraska into a financial crunch down the road were overblown. By fiscal year 2024-25, the package is projected to reduce state revenues by $565 million.
“This is about ‘go big or go home,'” he said. “This helps all Nebraskans.”
But Sen. Tony Vargas of Omaha, a Democratic candidate for the 2nd Congressional District seat, questioned whether the state could afford all of the proposed tax changes. He also pointed out that a large population of Nebraskans would not see a tax cut from the proposal.
Those left out from income tax cuts include single filers making less than $40,676 or married filers making less than $81,352, unless they get Social Security benefits. The property tax credits would not go to anyone who does not own property.
Several opponents objected to packaging all of the tax measures together. The Social Security proposal enjoyed broad support during first-round consideration, but the income tax cuts have had a rougher road. Opponents blocked a separate income tax bill earlier this week.
Linehan said she is not sure yet what avenue supporters will use to get the tax package passed. But she warned that the state budget bills could be in jeopardy if lawmakers continue to stand in the way of the tax cuts. Lawmakers are slated to vote on passing the budget bills Tuesday.
Year-round daylight saving time bill garners strong support in Nebraska
Don Walton: Budget debate spotlights urban-rural divide, race-based challenges
“If they want a budget, we need tax cuts,” she said.
The amendment proposed on LB825 would decrease the top corporate and individual income tax rates to 5.84% over five years. Under current law, the top corporate rate is 7.5% this year and is slated to drop to 7% next year. The top individual rate is 6.84% now.
The amendment would help out property owners by creating a new refundable income tax credit equal to a portion of what they pay in community college property taxes.
The new credit program would be similar to the LB1107 program created two years ago, which offsets a portion of what property owners pay in property taxes to K-12 schools. The LB1107 program will provide up to $548 million worth of credits this year, equal to about one-quarter of school property taxes.
The proposed community college credit program would start at $50 million this year and increase to $195 million by 2026. At full implementation, the program could offset about three-quarters of community college property taxes.
The amendment would fix the size of the LB1107 credit program at $560.7 million for 2023. Once reaching the maximum value set by the amendment, the school and community college credit programs would be allowed to grow by the same percentage that property valuations in the state grow, up to a 5% maximum.