Talks over a comprehensive tax-cut deal lurched closer to resolution in a Capitol hearing room Thursday as a panel of lawmakers signaled tentative support for two proposals by Gov. Pete Ricketts.
A working draft of the plan being hammered out by the Legislature’s Revenue Committee includes phased-in cuts to Nebraska’s personal and corporate income taxes, along with changes aimed at limiting property tax increases for farmers and ranchers.
But a key lawmaker warned of major tests to come.
“It may look like we’re halfway there, but I think the heavy lifting will be at the end,” said Sen. Jim Smith of Papillion, chairman of the Revenue Committee.
Committee members have yet to discuss a proposal by Sen. Mike Groene of North Platte, which would use money from the state’s property tax credit fund to offset new limits on property taxation by local schools. Talks on that component are expected to happen next week, when lawmakers return from a four-day weekend.
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Smith described Groene’s bill as a “pivotal piece” of any comprehensive plan the committee puts forth, saying it would bring “here-and-now property tax” relief that appears critical to winning support from rural senators.
Tempers flared at times during Thursday’s 2 1/2-hour meeting, and Smith smirked and shook a bottle of Aleve at reporters as he left the room.
Two committee members, Sens. Burke Harr of Omaha and Paul Schumacher of Columbus, complained throughout the meeting about the lack of detail available on the proposals being discussed.
“This isn’t Obamacare, where I have to pass it to find out what’s in it,” Harr said.
Specifically, Harr questioned whether wealthy Nebraskans would see bigger perks than anyone else from income tax cuts proposed in Ricketts’ bill (LB337) and another proposal by Sen. Brett Lindstrom of Omaha. An amended version of Lindstrom’s bill (LB452) was also added to the overall package Thursday.
Ricketts’ plan, which Smith sponsored on the governor’s behalf, would gradually lower the state’s top individual income tax rate from 6.84 percent to 5.99 percent over a minimum of eight years, with a cut triggered any year the state faces a projected revenue increase of more than 3.5 percent over the prior year.
Lindstrom’s revised plan would make similar, phased-in cuts to the top corporate income tax rate, and would immediately combine the state’s two lowest individual income tax brackets into one bracket with a rate of 3.1 percent.
Lindstrom and Smith said the cuts would benefit all Nebraskans, but Schumacher said they would “obviously” offer the most savings to people making six- to eight-figure salaries.
The third piece added to the package Thursday, sponsored by Sen. Lydia Brasch of Bancroft on the governor’s behalf, would change how agricultural land is valued for tax purposes and would place a 3.5 percent annual cap on the aggregate growth of farm- and ranch-land valuations statewide.
Harr called the 3.5 percent cap arbitrary and said the “free market” should determine what land is worth.
But Sen. Curt Friesen of Henderson said the cap is an appropriate way to prevent agricultural land values from soaring the way they have in recent years.
Harr and Schumacher were the committee’s only holdouts on the three proposals, with Schumacher voting against them all and Harr opposing LB337 and LB452, but not voting on LB338.
The six other committee members — Smith, Brasch, Groene, Lindstrom, Friesen and Sen. Tyson Larson of O’Neill — all supported adding the bills to the overall package.
Smith called the governor’s bills “forward-looking,” while Lindstrom and Groene’s proposals would have more immediate impacts on income and property taxation.
He also promised that the committee won’t vote on the overall package until members get the analysis Harr requested on how each proposal would impact people of varying wealth.
Groene’s proposal (LB640) is the final piece to be considered.
An amendment he finalized this week would allow school districts to fund no more than 55 percent of their budgets using local property taxes. The remaining 45 percent would need to come from other sources, including state and federal aid.
To help make up the difference, Groene would reroute all $221 million each year from the state’s property tax credit fund to pay for additional state aid. Any remaining gap in a district’s budget could be bridged by raising property taxes above the 55 percent limit, but only with a supermajority vote of the school board, Groene said.
He said funding schools to help lower property taxes is a better use of the state’s money than providing credits that “hide” what school districts are really taxing their residents.
“I don’t like the property tax credit fund,” Groene said. “It isn’t reliable. It’s a Band-Aid.”
It’s unclear whether Groene will get the entire credit fund for his own proposal.
Smith said Lindstrom’s income tax cuts would cost an estimated $50 million each year. And while Lindstrom’s own bill accounts for about $10 million of that — eliminating personal tax exemptions for people making $125,000 a year, or $250,000 a year for couples — the remaining $40 million would need to come from someplace else.
Smith said he believes an amended version of a separate bill (LB233) he’s introduced could raise $25 million to $30 million for income tax cuts. That bill would suspend several tax credits and exemptions until 2020.
Other funding for Lindstrom’s bill might need to come from the property tax credit fund, Smith said.
Farm groups and others urging lawmakers to focus more on cutting property taxes have barraged Smith for months. This week, the group Reform for Nebraska’s Future issued a statewide mailer featuring Smith’s picture and contact information.
Smith took to the legislative floor Thursday to respond.
“I can only do so much myself,” he said. “We are taxed too much in this state, and it’s time for us to do something and stop the fighting and stop dividing.”
