LINCOLN, Neb. (Nebraska Examiner) — If the state needs to return a glut of extra tax revenue to Nebraskans, State Sen. John Cavanaugh of Omaha says a simpler and more conservative approach would be direct payments of $200 to each resident.
Cavanaugh has introduced an amendment to a major income tax bill that would distribute prepaid debit cards of $200 each to every citizen. It is an alternative to deep cuts in state income taxes that are being proposed in Legislative Bill 939 that he argues is fiscally risky and benefits mostly the wealthy.
“The general philosophy is that we have a lot of extra money now, and we have an obligation to return it to Nebraskans,” Cavanaugh said. “That’s a justification for a rebate this year and not a permanent tax cut for millionaires.”
His amendment is proposed to LB 939, which might be debated as early as Tuesday,
But two key senators on tax issues have other ideas. Both Sen. Lou Ann Linehan of Elkhorn, who chairs the Legislature’s Revenue Committee, and Sen. Tom Briese of Albion, who has battled often for property tax relief for rural Nebraskans, have introduced their own amendments.
As originally written, LB 939 seeks to lower the state’s top individual income tax rate from 6.84% to 5.84% after three years. The bill would also reduce the state’s corporate income tax rate from 7.1% to 5.84% by tax year 2026.
The Nebraska Chamber of Commerce and other business groups, as well as Gov. Pete Ricketts, have argued for years that the state’s top income tax rate is too high, thus discouraging companies and workers from locating here.
They also maintain that Nebraska is falling behind. The only neighboring state with a higher top rate, Iowa, just enacted a law to lower that rate to 4.9%.
Property tax relief
Both Linehan and Briese have introduced amendments that would add some significant property tax relief to LB 939, with the intent of attracting more support from rural senators. They had reluctantly supported the bill during first-round debate on the condition that the bill be amended during second-round discussion.
Briese said his amendment would increase the current state income tax credit for property taxes paid by $50 million in the first year, increasing to $150 million by the third year. The credit would be expanded to offset a portion of property taxes paid to support community colleges. Now it offsets about 25% of property taxes paid to support K-12 schools.
Linehan said that the state’s current top income tax rate of 6.84% “chases some very wealthy people” out of the state.
“I’m pretty confident the Legislature is behind bringing the top rate down,” Linehan said. “We are way out of balance with all the states around us.”
During first-round debate on LB 939, opponents like Cavanaugh argued that it would mostly benefit the wealthy. Omaha Sen. Megan Hunt said that the social and political climate of the state, and whether people of all types are welcome, determines if they will stay or leave, not tax rates.
Cavanaugh said that his amendment, which also includes a modest income tax reduction, got a cool reception from Linehan and Ricketts when he presented it to them. But he said he got a compliment from Blair Sen. Ben Hansen, who had introduced a similar idea in the past.
The Open Sky Policy Institute voiced support Thursday of Cavanaugh’s idea, saying 18 other states have adopted or are considering similar refunds to return funds to residents because of overly ample tax reserves.
‘More direct way’
“It would be a more direct way to help Nebraskans — and particularly low- and middle-income residents — than the corporate and personal income tax cuts proposed in the currently amended version of LB 939,” wrote Chuck Brown of Open Sky. It would also spur economic growth, he added.
The one-time cost of the refunds would be $400 million, Open Sky estimated. By contrast, LB 939’s income tax cuts are projected to cost $400 million a year by fiscal year 2026-27.
That, Cavanaugh said, makes his proposal more conservative. If tax revenues continue to exceed estimates, he added, the Legislature could pass deeper income tax cuts later.
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