Senators pass tax cuts, school aid increases

May 25, 2023, midnight ·

Nebraska Capitol (Photo by Fred Knapp, Nebraska Public Media News)
Nebraska Capitol (Photo by Fred Knapp, Nebraska Public Media News)

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The Nebraska Legislature gave final approval Thursday to sweeping tax cuts and school funding increases, despite questions about whether those changes could be sustained in the future.

The bills up for a final vote Thursday included hundreds of millions of dollars in increased state aid to schools, state subsidies to reduce property taxes, and income tax cuts for individuals and corporations.

There was no suspense over whether senators would approve the measures – they had already been approved twice, by overwhelming margins. So Thursday’s debate focused more on the future. Sen. Jane Raybould said fiscal uncertainty calls for more caution than the bills reflect.

“We have inflation. We still have high interest rates. We have the debt ceiling uncertainty. We have some banks that are skittish. So all of these things add up to a very fiscally conservative approach, but that's not what we've done here,” Raybould said.

Raybould said some of the tax cuts could not be sustained into the future. Sen. Tom Briese disagreed.

“I would submit to you that what we're doing here with the tax proposal, with the tax package, is very sustainable. The governor's numbers demonstrate sustainability in this biennium and beyond. And how do they get there in doing that? They do that by utilizing very conservative revenue estimates,” Briese said.

Briese said those estimates include projecting that revenue increases would fall below historical averages for five years in a row, when in fact, the longest they have lagged behind is for three years.

Sen. Wendy DeBoer focused on the income tax cuts, which she said would primarily benefit people in the highest tax bracket.

“This is a tax cut for the wealthiest in Nebraska. And eventually, if we have enough money, eventually, if there isn't a downturn in the economy, eventually, if we don't have to walk it back, then maybe we'll get some middle class tax cuts,” DeBoer said.

Income taxes for the highest tax bracket, currently just under 7 percent, would be cut beginning in January and eventually reach just under 4 percent in 2027. Meanwhile, taxes for the second highest bracket, currently just over 5 percent, would not be cut until 2026, and would match the highest bracket in 2027.

Sen. Lou Ann Linehan, chief sponsor of the income tax cuts, said the highest income tax bracket starts at $29,000 for individuals and $58,000 for couples, so the tax cuts that would be implemented first would also benefit the middle class. The legislation will also reduce corporate income taxes to just under 4 percent, which Linehan said would be fairer than the current system.

“We have a messed up tax system. We have overused incentives, which don't treat everybody the same, and kept our individual rates too high. This is the first step, get a rate top rate down to 399 (3.99 percent). And then maybe we can look at some of the (corporate) incentive packages that are very generous if you have the accountants and lawyers to use them. We won't have to depend on them so much to keep corporations and businesses in Nebraska,” Linehan said.

After less than an hour of debate, senators voted 39-2 to approve the income tax cuts. They also approved the property tax subsidies and school aid increases on votes of 44-0.

The votes came the day after Gov. Jim Pillen issued a series of line item vetoes to state budget bills, which he said would save almost $200 million over the next four years. Sen. DeBoer objected to the contrast between the tax cuts and the vetoes.

“We're doing this at a time when we just got vetoed things like a program to help pregnant teens learn how to parent their children. When court appointed special advocates and public guardians were vetoed. When a pilot program for kids with PTSD who were traumatized by gun violence that doesn't even use general funds was vetoed because we don't have enough money. But we had plenty of money when we were talking about which tax brackets to cut,” she said.

Lawmakers will have an opportunity to sustain or override the governor’s vetoes next Wednesday.

Also Thursday, the Health and Human Services Committee held a public hearing on whether or not to confirm Dr. Timothy Tesmer as the state’s chief medical officer.

Tesmer chaired the state Board of Health when it issued a statement as the Legislature was about to debate restrictions on health care for transgender youth. The statement said the board “does not support irreversible surgical and hormonal manipulation of minors for the purposes of gender reassignment.”

The Legislature eventually amended the bill to prohibit surgery, but left decisions about puberty blockers and hormone treatments to rules and regulations to be promulgated by the chief medical officer.

In Thursday’s hearing, Sen. Machaela Cavanaugh challenged Tesmer’s ability to be fair in implementing the law.

“You are now being tasked with the biggest legislative piece in the history of this state: to define what it means to be a trans person in this state, starting with our most vulnerable -- children. And there is a thought, and I have this thought myself, that this is just the beginning to eradicate trans people from existence in our state,” Cavanaugh said.

Tesmer denied any discriminatory intent, and promised to consult with experts, including doctors who specialize in treating transgender youth, in coming up with the regulations.

“There's the issue of surgery that's not going to be discussed. It can't be because that's not what the law says. But we will put everything else on the table and come up with regulations which hopefully I pray, hopefully, deal with this in a appropriate, evidence-based rational, helpful fashion,” Tesmer said.

The committee voted 4-2, with one abstention, to recommend Tesmer’s confirmation. Sen. Ben Hansen, the committee chairman, said he expects the full Legislature to vote on Tesmer’s confirmation early next week. Senators are now off for a four-day weekend, and will resume their work on Tuesday.