Legislature advances income tax cuts

March 30, 2023, 5:37 p.m. ·

The Sower atop the Nebraska Capitol dome (Photo by Fred Knapp, Nebraska Public Media News)
The Sower atop the Nebraska Capitol dome (Photo by Fred Knapp, Nebraska Public Media News)

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Individuals, corporations, parents with childcare expenses and federal retirees would all get tax cuts under a proposal advanced by the Legislature Thursday.

The tax bill advanced Thursday focused on cuts for individuals and corporations. Specifically, the bill cuts the top rate in both cases from more than six percent to four percent.

That would save a couple with income of $80,000 an estimated $200 a year, and a couple with $120,000 in income about $1,000.

The bill was also amended to include a child tax credit, promoted by Sen. Eliot Bostar, of $2,000 for households with incomes of $75,000 or less, and $1,000 for households with income of $75,000 to $150,000. That means both the previously mentioned couples could save another $2,000 a year.

Federal retirees would also get a break, under a proposal by Sen. Carol Blood that senators amended into the bill. Blood said people who worked for the post office or the USDA, for example, and were hired before 1984 didn’t qualify for Social Security, and their retirement income is taxed.

“While Social Security taxes were lowered for everybody else, we left out the federal employees. So (under this bill) not only will non-federal employees get a break, but federal employees will also get a break, because right now without this bill 100% of federal annuities are still subject to Nebraska income tax, and we want to alleviate that,” Blood said.

Both Bostar and Blood are Democrats in the officially nonpartisan Legislature, and Bostar is on the Revenue Committee. In an interview following the 41-0 vote to advance the tax bill, Sen. Lou Ann Linehan, the Republican chair of that committee, said the amendments and the vote showed party affiliation doesn’t always determine what happens.

“There is definitely nonpartisanship in the Legislature. You try to make sure, when you bring a package out, that everybody on your committee gets something invested in that package. That's the way you keep committees together, and if your whole committee stays together, you have a much better chance of getting the whole Legislature to come with you,” she said.

Sen. Wendy DeBoer suggested one possible future amendment to the bill, which would lower tax rates for incomes below about $36,000 for an individual or $73,000 for a couple.

“Let's get our middle class and the people -- middle income -- and the people who are earning that amount a little more of a tax cut. And let's bring these tax cuts -- all of them -- to all of the people who live in our districts,” DeBoer said.

DeBoer said that would add about another $30 million a year to the cost of the bill. Linehan said she would be open to that idea at the next stage of consideration. But in an interview, she predicted the income tax cuts would have to be scaled back.

“There'll be negotiations, and the packages will all probably be too big, and we'll have to skinny it down. So some things that we're doing this year, if we don't have the money, may have to wait till next year. That's true with tax cuts, it’s true with property taxes, income taxes. It's also true with spending,” she said.

When fully implemented in 2027, the personal income tax cuts are estimated to reduce state revenues by nearly $600 million a year. The corporate tax cuts are estimated to reduce revenues by more than $100 million year. Together, those two cuts equal about 10 percent of expected state revenues.

Linehan said she’s confident there’s enough time left in this year’s session, despite being slowed by filibusters, to get legislation passed. This year’s legislative session is scheduled to last 90 business days. Next year’s session is scheduled for 60 days.

“We get more done in 60-day sessions that we do a 90-day sessions. This is just all legislatures: We're like high school, you know. We mess around and then we cram at the end,” she said.

The end of this year’s session is currently scheduled for June 9.