Nebraska advances income tax cuts despite reservations

February 24, 2022 GMT

LINCOLN, Neb. (AP) — Nebraska lawmakers gave initial approval Thursday to personal and corporate income tax cuts backed by Gov. Pete Ricketts, despite reservations about who would benefit the most and the likely revenue losses for the state.

Senators voted, 40-1, to advance the bill through the first of three required votes but promised to work on changes to try to ease some of the concerns.

Some lawmakers said they were particularly opposed to the corporate income tax cut, which would reduce the tax burden on large corporations that sell items and services in Nebraska but are headquartered elsewhere.

“It sends the message to working people that we’re a corporate welfare state,” said Sen. Machaela Cavanaugh, of Omaha. She abstained from voting.

Business groups have defended the measure, arguing that it would encourage companies to invest in Nebraska and keep the state competitive with its neighbors, most of which have lower tax rates. Last week, the Republican-controlled Iowa House passed a tax cut proposal that would move that state to a 4% flat income tax over four years, but Iowa lawmakers scrapped a proposed corporate income tax cut.


The Nebraska proposal would lower the top individual income tax rate from 6.84% to 5.84% by January 2025. The top corporate income tax rate would drop from 7.5% to 5.84%.

Supporters of the measure note that Nebraska’s top rate applies to single taxpayers with taxable incomes as low as $31,751 and married couples with taxable incomes of $63,501. Taxpayers who earn more than those amounts would get a tax break under the bill, but the highest income earners would enjoy a much larger benefit.

Nebraska had 8,811 taxpayers who earned at least $1 million in 2018, according to state Department of Revenue data provided to lawmakers.

Those taxpayers had adjusted gross incomes totaling $75.1 billion — more than half of all the income reported in Nebraska — yet they paid just 10% of the state’s total income taxes. Many of them did so by claiming credits and deductions to lower their taxable income.

Some lawmakers argued that any tax cuts the state passes should focus on lower- and middle-income families.

“This bill is incomplete, and it is hopefully going to change drastically,” said Sen. Matt Hansen, of Lincoln.

Sen. Tony Vargas, who serves on the budget-writing Appropriations Committee, said he would support the measure despite his concerns about its long-term effect on state finances. Vargas, of Omaha, recalled how lawmakers struggled to balance the budget his first year in office because of lower-than-expected tax revenue.


“Working families are being hit hard,” said Vargas, who is also a Democratic candidate for the Omaha area’s 2nd Congressional District. “But at the end of the day, we need to make sure we are looking at the long run with all of our proposals.”

The bill’s chief sponsor, Sen. Lou Ann Linehan, has said Nebraska is flush with cash from higher-than-expected revenues and needs to return the excess money to taxpayers.

Like other states, Nebraska saw a surge in tax collections after the federal government sent pandemic assistance money to millions of Americans. Nebraska is expected to have $412.3 million in excess state revenue during the current two-year budget cycle.

That number is likely to change on Monday, when the Nebraska Economic Forecasting Advisory Board meets to update its tax projections.


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