Nebraska tax overhaul committee puts a plan on the table, but is it appetizing? -
Published Wednesday, November 13, 2013 at 1:00 am / Updated at 3:46 am
Nebraska tax overhaul committee puts a plan on the table, but is it appetizing?

LINCOLN — A special legislative committee charged with crafting a fairer tax system for Nebraskans finally has a proposal on the table.

But it was far from certain whether the up to $100 million plan discussed Tuesday would be advanced by the group.

The revenue-neutral proposal would deliver only $30 million in property tax relief — about a 1 percent cut — and only for one year.

It also would impose $60 million to $70 million in new sales taxes on currently exempt consumer services and limit the income tax deductions allowed for the wealthiest Nebraskans, among other changes.

A vote on the proposal was put off until the committee's Dec. 3 meeting. The Tax Modernization Committee is scheduled to issue its recommendations by Dec. 15, less than a month before the Legislature convenes.

After the panel discussed various tax overhaul options for nearly four hours, State Sen. Kathy Campbell of Lincoln laid out ideas that were based mostly on suggestions made earlier by Sen. Galen Hadley of Kearney.

Hadley is chairman of the Legislature's Revenue Committee, which oversees tax policy.

“I just wanted something out on the table so we could get some idea what that looks like as a package,” Campbell said.

She said elements of the plan may not make the final cut, and it's pretty clear that whatever the committee advances would be a first step toward bigger tax changes.

It will take more time, Campbell said, for the Legislature to decide on more complicated changes, such as taking away sales tax exemptions — an idea advanced by Gov. Dave Heineman earlier this year — or substantially increasing state aid to schools and local governments.

The committee also decided to study an idea suggested by Sen. Tom Hansen of North Platte: Plow an additional $145 million into state aid to schools to reduce local property taxes.

Hansen said most of the money would come from the $115 million now devoted to the property tax credit. But several committee members said that change would not provide tax relief.

Several lawmakers expressed doubts about the Campbell-Hadley plan and how, exactly, it would be funded.

Sen. John Harms of Scottsbluff said $30 million in property tax relief didn't seem like enough, given all the complaints from taxpayers about high property taxes.

Tax changes under consideration by the Tax Modernization Committee

» Return an additional $30 million to taxpayers through an existing property tax credit program. On a home valued at $100,000 for tax purposes, it would add $15 to $20 to the $66 credit that a homeowner will get this year. Lawmakers said that it would be only a one-year tax savings and that the entire property tax credit program should be reviewed.

» Impose $60 million to $70 million in new sales taxes on previously tax-exempt services. Exactly which services would be taxed wasn't spelled out, but the committee has talked about taxing contractors and auto repair labor, landscaping services, haircuts and funeral services.

» Provide a sales tax exemption on repair parts for farm machinery, a $9.7 million tax savings that has long been sought by implement dealers and farm groups.

» Index income tax brackets for inflation, a mostly revenue-neutral move to ensure that lower- and middle-income taxpayers don't end up subject to higher tax rates because their incomes rise. The state's highest income tax rate, 6.84 percent, kicks in at $54,000 of income for a married couple filing jointly, and that has been criticized as too low of a threshold.

» Raise the income threshold at which Nebraskans must pay taxes on Social Security income, providing about $8 million in tax savings for retirees. Right now, the first $25,000 of income for an individual, and $32,000 for a couple, is exempt. But several states totally exempt such income, which leads to low ratings for Nebraska on tax friendliness for retirees.

» Provide a refundable energy tax credit for low-income Nebraskans, supplying about $4.5 million in tax savings to about 50,000 households.

» Adjust corporate income tax brackets so that the highest rate doesn't kick in until after $250,000 in annual income. That would provide about $5 million in tax savings for smaller businesses.

» Provide about $6 million in one-time aid to counties to offset the higher costs of the state's new juvenile justice program, which shifted significant costs from the state to counties.

» Cap itemized income tax deductions at $25,000 for Nebraskans with adjusted gross incomes of $400,000 or more, which would raise about $9 million in new tax revenue. The proposal would affect about one-half of 1 percent of the state's taxpayers, said Sen. Heath Mello of Omaha. The idea, he said, was prompted by the federal government's tax increase on the wealthiest Americans and to offset the cost of granting tax breaks to retirees. Mello said later that he didn't think the idea would be adopted.

Contact the writer: Paul Hammel    |   402-473-9584    |  

Paul covers state government and affiliated issues and helps coordinate the same.

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