By AARON SANDERFORD
LINCOLN — Under the shadow of tightening state revenues, the Nebraska Legislature gave final approval Thursday to a $6.4 billion tax relief package. State lawmakers approved income tax cuts, hikes in state property tax credits, a tax credit for child care and a boost to school funding to offset property taxes.
State Sen. Lou Ann Linehan of Omaha had spent years spearheading legislation that nibbled at the urban push for lowering the state’s top income tax rates and the rural push to ease the burden of local property taxes. On Thursday, she helped secure at least 39 votes in the 49-member Legislature for all three parts of a bigger bite, laid out in Legislative Bills 243, 583 and 754.
“This is a big win for Nebraska,” Linehan said, smiling. “A big win.”
School funding changes
Critics of the plan, including State Sens. Jane Raybould and Danielle Conrad, both of Lincoln, and the OpenSky Policy Institute, have argued that the state risks cutting taxes too deeply and spending so much on tax credits and tax offsets that it puts future funding for state services at risk.
Gov. Jim Pillen has pressed for passage of the package and plans to sign the three bills. He had campaigned on many of the proposals, including changing the state aid to education formula to establish a baseline level of aid – $1,500 per student – that ensures state taxpayers are delivering significant funding to every public school district in the state.
The Nebraska Farm Bureau and other advocates for farmers and ranchers praised passage of a new cap on how much public schools can seek from property owners in a given year. School districts and the state teachers union have argued that the cap could take away funding public schools need.
The largest remaining piece of the tax relief package yet to pass is LB 727, a combination of about 30 tax credit proposals, including one for major investment in retail aimed at turning Nebraska Crossing into a major tourist destination. That bill is headed for final reading next week.
Income tax changes
The tax package’s income tax changes, particularly its emphasis on lowering the tax rates of top earners by more than those in other brackets, received the most pushback Thursday.
State Sen. Wendy DeBoer of Bennington said people in the middle class tax bracket shouldn’t have to wait until 2026 for a modest tax cut and watch the people in the highest bracket see relief right away. She had pressed for more cuts to the middle bracket.
“This is a tax cut for the wealthiest in Nebraska, and eventually, if we have enough money … then maybe we’ll get some middle-class tax cuts,” DeBoer said. “I don’t think that’s fair.”
On Thursday, OpenSky shared its projection that most Nebraskans would eventually receive an income tax cut of less than $300, while the state’s top earners would see tax breaks at least double that amount. The top 1% would pay tens of thousands less.
The Platte Institute and others have argued that putting more money in the hands of small business owners and job creators will boost pay for employees and hiring and lead to higher consumer spending that powers much of the modern Nebraska economy.
Pushing for change
The Chambers of Commerce in Omaha, Lincoln and statewide have pushed for decades to lower Nebraska’s top income tax rate under 4%. They argue it will make the state more competitive with neighboring states for attracting business owners and business investment.
For tax year 2024, Nebraska taxes income at and above $37,130 for individuals and at and above $74,260 for married couples at its top income tax rate of 6.64%. LB 754 will cut the top rate to 3.99% by 2027. The bill eventually cuts the second tax bracket rate, currently 5.01%, to 3.99% by 2027
State Sen. Mike Moser of Columbus, Pillen’s state senator, walked around with a sheet of paper he showed to colleagues and reporters displaying the state’s current tax brackets. He said the changes would be meaningful, no matter what people earn.
Child care tax credits
Linehan said critics of her package’s income tax cuts ignore that the package also includes expanded tax credits for child care, ensuring that even parents who typically pay little or nothing at the end of the year in income taxes can receive money back, a “real infusion of cash for people who need it.”
“Everybody pays at every bracket,” Linehan said. “When you lower the brackets under the top bracket, you’re also lowering taxes for the rich, or the corporations. … We’re not talking about taxes for the rich.”