Nebraska Legislature session starts this week, and its battle over tax cuts comes with a twist

LINCOLN — Gov. Pete Ricketts and some key Nebraska lawmakers profess optimism about the prospects for cutting taxes during the new legislative session.

Others say the session that kicks off Wednesday could end with a stalemate, just as in the 2017 session.

In that session, proponents of property tax cuts squared off against advocates for income tax cuts under the shadow of a state budget shortfall.

When the dust settled, no tax proposal got enough support to advance, let alone pass.

“That might still be the case,” said Speaker of the Legislature Jim Scheer of Norfolk. “Everybody wants to pay less in taxes, but the question is how you get there.”

The upcoming session looks to feature renewed battles over whether the answer lies with property tax cuts or income tax cuts and whether the state can afford tax cuts when lagging tax revenues and growing state needs have opened up a $200 million budget gap for the two-year budget period that started July 1.

But this time the battles will take place with the potential of a property tax petition drive looming.

“I think the petition drive will focus a lot of minds on some real solutions,” said State Sen. Lou Ann Linehan of Omaha.

A loose-knit group of agricultural, business and homeowner organizations took the first steps this fall toward launching an initiative petition aimed at delivering some $1.1 billion in tax savings.

Their proposal would provide Nebraska property owners with income tax credits equal to 50 percent of property taxes paid to school districts, or about 30 percent of total property taxes paid.

Backers say the petition is a fallback option if lawmakers fail to pass significant property tax legislation this session.

Sen. Curt Friesen of Henderson said the petition grew out of the frustrations of many Nebraskans, especially farmers and ranchers, with rising property tax bills.

“I’m hoping we see major property tax relief,” he said. “Everywhere I go, we’re all being asked about property taxes, and so I think it needs to be front and center and substantial.”

Friesen was among several senators who introduced bills last session that would reduce property taxes or offset them with tax credits funded by other state tax sources.

Proposals expected in the coming session include a legislative version of the petition proposal, to be introduced by Sen. Steve Erdman of Bayard.

Another plan is expected from Nebraskans United for Property Tax Reform and Education, a coalition of farm and education groups. The coalition is looking to increase state school aid specifically to replace property taxes.

The plan would fund the increase with some combination of eliminating state sales and income tax exemptions, broadening the sales tax base or raising tax rates.

John Hansen, president of the Nebraska Farmers Union, said the proposal addresses Nebraska’s overreliance on property taxes to support schools.

Sen. Mike Groene of North Platte took a different approach last session, proposing to redistribute the state’s $224 million of existing property tax credits in a way that would benefit mainly rural property taxpayers at the expense of urban ones.

He said he plans to pursue that idea and is open to other property tax proposals. But he is not interested in income tax cuts, which he said are the concern of only a few big money interests.

“If we focused on a property tax bill, I think we could get it passed,” Groene said. “If we add income tax to it, it cannot get passed.”

Friesen said he would be happy to work on a compromise that includes income tax cuts. But he’s adamant that property tax changes need to be the main focus of any measure.

Ricketts and Sen. Jim Smith of Papillion, the Revenue Committee chairman, are just as adamant in calling for income tax cuts, along with the Nebraska Chamber of Commerce and Industry and other business groups.

They argue that lower income tax rates are needed to attract investment and encourage economic growth in Nebraska. They also say the state’s top individual and corporate income tax rates are out of step with its neighbors.

“I am concerned that Nebraska at least remain in the hunt,” Smith said. “Income tax relief helps expand the economy.”

The governor and Smith acknowledge the public demand for property tax reductions, however, and said they are working on a plan to address both taxes. Neither would give details about the proposal yet.

Smith said the plan would be similar to but not the same as Legislative Bill 461, which was blocked by a filibuster last session.

That package would have cut the top individual and corporate income tax rates, increased credits for most taxpayers and changed how agricultural land is valued for property tax purposes.

Opponents argued that LB 461 focused too much on income tax cuts, compared with the property tax changes.

As advanced from committee, the plan would have provided about $10 of income tax cuts for every $1 of property tax savings for agricultural land owners.

Smith countered that property taxes should be addressed with a measured approach, one that fits within the state’s budget. He said real property tax cuts come from spending reductions by the local governments that collect the tax.

Some lawmakers remain skeptical of doing either property tax or income tax cuts at a time when state revenues are suffering.

Sen. Burke Harr of Omaha said lawmakers already “are stealing from our rainy day fund” to balance the budget and keep government operations going. The Legislature used $173 million from the cash reserve fund to shore up the current budget and are expected to look at tapping it further in the new session.

“How can we afford new programs and new tax cuts?” he asked.

Harr called for tax proposals that aid workforce development and increase the number of well-paying jobs in Nebraska rather than reduce taxes broadly.

Still, he, like others, said the Legislature could get something done on taxes this session if members work together, reach across party lines and seek compromise.

“I think it’s possible,” Harr said.

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