Tax Cuts, Roads Bonding Proposals Await Debate

April 1, 2021, 3:52 p.m. ·

Sen. Lou Ann Linehan speaks as other Revenue Committee members look on (Photo by Fred Knapp, NET News)

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As the Nebraska Legislature prepares to debate major tax and spending proposals, members of the Revenue Committee are touting a package of tax cuts they are proposing. And senators are talking about a proposal that will be debated to allow borrowing up to $450 million to speed up construction of expressways and other roads.

The proposals advanced by the Revenue Committee include eliminating taxes on military retirement income and phasing out taxes on Social Security over 10 years.

The military retirement provision would affect about 13,000 people and cost about $13 million a year; it has already passed through two rounds of voting with no opposition.

The Social Security proposal has not yet been debated. Nebraska currently taxes Social Security income for couples with adjusted gross income of at least $58,000, or individuals with income above $43,000. Revenue Committee Chair Sen. Lou Ann Linehan said that puts the state out of step.

“We are one of only 13 states that tax Social Security income. Nebraska loses 15 percent of our retirees to other states because other states don’t tax Social Security” Linehan said.

Linehan said 345,000 Nebraskans receive Social Security every month. The eventual cost of the proposal is almost $140 million a year.

The committee is also proposing to lower the top corporate income tax rate from 7.81 percent to 6.84, the same rate paid by upper income individuals and limited liability companies. And it wants to limit property tax increases by local governments to three percent a year.

Linehan said without such a limit, all the money state lawmakers are directing toward relieving property taxes levied by local governments won’t achieve that goal.

“As long as there’s a group of people spending money which the Legislature has no control over, and we keep filling up the bucket, you’re not going to solve the problem. No one goes into partnership with someone and picks up the tab without any control over the spending,” she said.

Committee members were asked if they shouldn’t be cautious about proposing tax cuts in case current federal spending plans don’t continue. Sen. Curt Friesen said those plans will help the state afford the proposals.

“I think we all want to be cautious on where we’re headed because we don’t know maybe what the real economy is. But when you look at the money that the feds are going to pour into us yet with infrastructure and everything else, I think it drives the economy and so there’s going to be more revenue coming in because it drives spending. So I don’t look for our revenue to fall off until the feds finally quit pumping money into us,” Friesen said.

The Open Sky Policy Institute, which is often critical of tax cutting proposals, said the measures endorsed by the Revenue Committee could pack a heavy fiscal punch to state revenues. The group estimated they could cost $385 million a year when fully implemented. That’s about 8 percent of current state revenues. Linehan was asked if she thinks the proposed tax cuts are sustainable.

“I would say they’re far more sustainable than more spending. And that will be the argument on the (legislative) floor: whether we cut taxes or we spend more money. And once you start a program, it’s very hard to stop a program,” she said.

At the same time, the Revenue Committee has advanced a proposal for more, or at least accelerated spending, on roads. The committee voted 7-0 Wednesday to advance a bill that would allow the state to borrow up to $450 million via bonding to speed up construction of expressways and other roads. The measure is Sen. Lynne Walz’s priority bill. In a public hearing last month, supporters from Norfolk, Columbus and other communities said it would help complete the 600-mile expressway system originally mapped out more than 30 years ago, which remains about one quarter incomplete. Linehan said she voted to advance to proposal because she thinks the idea should be discussed.

“I have friends in Norfolk and friends in Columbus, and because this position has taken me around the state, I have been up and down those roads. They need to be fixed. So I don’t know if this is the way to do it, or how to do it, but they need to be fixed,” she said.

Sen. Mike Moser, who represents Columbus and used to be mayor of that city, said bonding now could save money.

“Currently construction inflation is much higher than bond interest. The spread is around four or five percent. And when you factor that into a 20-year bond on $400 million it could save you $200 million. So it’s kind of like buying corn and selling corn on the same day and making a dollar a bushel. I kind of compare it to that,” Moser said.

At the hearing last month Moe Jamshidi, then Gov. Pete Ricketts acting director of the Department of Transportation, opposed the idea of bonding. Jamshidi said Nebraska’s current pay-as-you go policy gives the state more flexibility to respond to events like flooding.

Ricketts' spokesperson Taylor Gage said Thursday the governor continues to oppose bonding for roads. But Sen. Mike Flood of Norfolk, a supporter of bonding, said the proposal sets a course for the future, and could be expanded beyond $450 million.

“I think we’re really setting the table for the next governor in the beginning of 2023. And maybe if this passes this year, there’s an opportunity to step into it even more next year,” Flood said.

The proposal now awaits debate by the full Legislature.