Bill aiming to offset $226 million worth of unintended state tax increases clears first round

March 10, 2018 GMT

LINCOLN — Nebraska taxpayers would escape some unintended income tax increases under a bill that won first-round approval from state lawmakers Thursday.

Legislative Bill 1090, introduced by State Sen. Jim Smith of Papillion, advanced on a 38-0 vote. Smith said the measure would “hold harmless” Nebraska taxpayers from the unplanned tax hikes.

“We do not want to have an unintended increase of taxes on Nebraskans,” the senator said.

Without the bill, state income tax payers would face an estimated $226 million worth of tax increases in 2018 because of federal changes passed by Congress in December.

Those changes included the elimination of personal tax exemptions, along with changes in standard and itemized deductions.

LB 1090 would offset those effects by creating a state personal exemption for each member of a household and by increasing the state standard deduction.

The federal law nearly doubled the standard deduction, meaning that fewer people are expected to itemize deductions. The state standard deduction change would help those people, who would be precluded from itemizing on state taxes, even if it were to their advantage.

It also would keep the traditional consumer price index as the means of calculating inflationary increases in tax brackets.

A small group of senators, led by Omaha Sens. Bob Krist and Burke Harr, urged the state to take a more cautious path, given the state’s precarious fiscal status.

They unsuccessfully sought to scale back LB 1090 this year and leave additional adjustments to next year, when the exact effects of the federal tax changes will become clearer.

“Let’s not overreact at this point, not knowing if those estimates are indeed accurate,” said Krist, who switched parties to run for governor as a Democrat.

Harr, also a Democrat, angrily blamed Congress and Nebraska’s all-Republican delegation for approving a “supposed federal tax cut” that actually would deliver a tax increase to Nebraskans.

“We should be spitting bullets. Instead we’re kumbaya-ing around here,” Harr said.

Krist’s amendment, like a bill offered by Harr, would have provided state personal exemptions only to single taxpayers making less than $100,000 in federal adjusted gross income and married taxpayers making less than $200,000.

Backers said the proposal would protect lower- and middle-income taxpayers. While higher-income taxpayers would be left out, they would get greater savings from the federal tax change.

Krist’s amendment fell far short of being adopted, generating only 12 of the 25 votes needed.