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As of this posting, the Legislature is poised to enact significant tax reform resulting in nearly $6 billion dollars going back to taxpayers over the next six years. Robust revenue growth and responsibly restrained spending has resulted in a record amount of available funds in the state’s coffers.
Two bills, LB 754 and LB 243, represent two pieces of a greater overall legislative package designed to make sweeping changes to Nebraska’s tax system and its approach to education funding. The Legislature recently debated and advanced both bills from General File, the first round of debate, with overwhelming support.
LB 754 would result in about $3 billion in tax cuts over six years and is comprised of the following components:
• Reduces gradually the top personal income tax rate from 6.27% to 3.99% by 2027. The corporate tax rate would also be lowered to 3.99% by 2027;
• Phases out the income tax on Social Security, making this retirement income 100% exempt from state taxes by the 2024 tax year;
• Exempts from state income taxes, federal pension benefits received by retirees who don’t receive Social Security;
• Allows for tax credits for parents with children in childcare, for people who donate to childcare programs and for people who operate or work for childcare programs;
• Allows taxpayers to deduct from their federal adjusted growth income either the standard deduction or federal itemized deduction plus the total amount of state and local property taxes paid, whichever is greater;
• Provides for a deduction for corporations for research and experimental expenditures; and
• Establishes a 15-day grace period before out-of-state workers are subject to Nebraska income taxes.
In an effort to mirror the relief provided by the income tax changes, LB 243 would also result in $3 billion in property tax relief by doing the following:
• Increases the amount the state contributes to the property tax credit program from $313 million this year to $560 million by 2029. The fund will continue to increase every year afterwards by the same percentage the statewide total assessed value of property increases from the prior year. While the state doesn’t levy a property tax, the property tax credit program provides for a direct reduction in the amount a property taxpayer owes local governing bodies;
• Removes the growth cap under the Nebraska Property Tax Incentive Act to allow dedicated funds in this program to also grow at the same percentage rate as statewide assessed valuation. Under this program, taxpayers can receive income tax credits to offset the amount of property taxes paid to school districts;
• Limits the annual growth of school revenues to 3%, with exceptions for growth in student population, the number of limited English proficiency learners and poverty students; and
• Eliminates the property tax levy authority for community colleges and provides for state funding with the exception of allowing community colleges to levy property taxes for capital improvements and to fill in gaps should the state not meet its funding obligations.
Nebraska’s corporate and income taxes are not competitive with surrounding states and ever-increasing property taxes are driving people out of our great state. With an unprecedented surplus, Nebraska is in a unique situation and now is the time to resist more government spending and give that money back to the taxpayers.