A controversial state tax reform package is expected to be debated this week, May 2-5, in the Nebraska Legislature. - Editor. Nebraska’s income and sales taxes were introduced 50 years ago with the promise that new taxes would bring the property tax burden under control. Today, Nebraska still has the 7th highest average property tax rate, the 14th highest income taxes, and just got through fending off another proposed increase in the state sales tax.
Nebraskans have encountered these barriers to real tax relief through the decades. Whether agriculture was in a downturn or skyrocketing — and even when winning small tax policy battles — groups that reliably support higher taxes have won the war in the Legislature.
The new Revenue Committee led by Sen. Jim Smith has bucked this Nebraska tradition, however. By advancing LB 461, the Nebraska Taxpayer Reform Act, the committee’s majority of urban and rural senators are showing the Legislature can and should do better, with a plan that improves Nebraska’s tax system for generations to come.
Nebraska state senators are only a handful of votes away from overcoming a legislative filibuster of LB 461.
This achievement took great resolve. Many myths about the budget and tax policy are standard talking points in Nebraska, even among respected figures.
Why is LB 461 the right solution at the right time? First, it’s important for all Nebraskans to know that state tax collections are increasing, not decreasing. Yes, revenues grew at a slower pace than usual this year, requiring tough decisions. But this is not due to taxpayers being under-taxed; it’s because of the harsh economic reality taxpayers are facing.
The spending ambitions of the Legislature no longer align with the taxpayer’s ability to pay. Since 2000, the state’s General Fund has seen growth every year the country was not in a recession. In some years, the General Fund grew north of 7 percent after adjusting for inflation, far more than Nebraska’s economy.
The Nebraska Economic Forecasting Advisory Board recently projected the state General Fund will grow to $4.7 billion by 2019, or over $13 billion within the next 3 years.
As it is, compared with our key lower-tax rivals, Nebraska spends an average of over $2,000 more per person each year. Through the use of carefully-designed revenue triggers the Tax Foundation has called “the most cautious yet adopted by any state,” LB 461 can assure that as this growth continues, taxpayers would be provided with relief as well.
Nebraskans have made four main requests of the revenue committee in recent years, and LB 461 addresses each of them in a responsible manner:
For farmers and ranchers, LB 461 assesses ag land property tax on an income-potential basis. To accomplish this, the state would also have to kick in more state aid to education starting next year, increasing the number of school districts that would receive state equalization aid. A pending amendment to the bill would also increase the property tax credit relief fund for all property owners in years the state budget grew by 4.5 percent or more.
For workers, small businesses, and retirees, LB 461 would reduce the state personal income tax starting in 2019, only when the next budget is written. This would first be funded through ending tax credits for specific taxpayers, and reducing deductions for higher-income taxpayers. In later years, tax rate reductions would only occur if state revenue was projected to grow at 3.5 percent, even after the tax reduction took effect.
For Nebraskans who are eligible for the federal Earned Income Tax Credit, Nebraska would expand its own match of that credit to 12 percent by 2019. This would increase the refunds lower-income working taxpayers receive at tax time.
And corporate income taxes would be reduced 0.2 percent in 2019, and then again each year revenue growth was at 4 percent or more. Over time, this would mean Nebraska would no longer have the highest corporate tax from the Missouri River to California.
LB 461 will require the Legislature to make taxpayers as much a part of the regular budgeting process as every other interest group that has their ear in Lincoln. In good years, Nebraskans and people considering Nebraska will see our tax policy becoming friendlier, and in bad years, the responsible design of LB 461 will make sure the budget is protected.
By Jim Vokal, the Chief Executive Officer of the Platte Institute, www.PlatteInstitute.org.