Income tax measure scaled back, advanced to final reading

A proposal to cut Nebraska’s top individual and corporate income tax rates to just under 4 percent beginning with tax year 2027 advanced to the final round of debate May 11 after senators amended it to remove certain other tax benefits included on general file.

LB754, introduced by Elkhorn Sen. Lou Ann Linehan at the request of Gov. Jim Pillen, would cut the top individual and corporate income tax rates in increments over the next several years to 3.99 percent.

During select file debate, Linehan filed an amendment that she said would reduce the proposal’s overall cost to fit within the state’s two-year budget.

The amendment would remove provisions adopted on general file relating to the taxation of non-resident income and deductions for certain business expenditures and state and local taxes paid. Linehan said scrapping those provisions would reduce the bill’s cost by approximately $81 million in its first year of implementation.

Sen. Jane Raybould of Lincoln opposed the bill and introduced an amendment that instead would cut the top individual and corporate rates to 6.44 percent by tax year 2024. She said LB754 mostly would benefit the state’s wealthiest individuals and do little to help those with low or middle incomes.

The amendment failed on a vote of 12-20.

Raybould introduced another amendment that would require the state tax commissioner to approve the incremental rate reductions only if the state’s General Fund net receipts grow at a certain rate and the Cash Reserve Fund is at a certain level.

It failed on a vote of 14-29.

A similar Raybould amendment that would tie rate cuts solely to growth in General Fund net receipts failed on a vote of 10-28.

Lincoln Sen. Danielle Conrad supported the first of Raybould’s “trigger” amendments, saying it would ensure safeguards are in place if state revenue drops unexpectedly.

Linehan opposed both trigger amendments, saying they would create uncertainty for individuals and businesses. If state revenue does not meet projections, she said, future lawmakers could pause or reverse the proposed cuts.

In addition to reducing the rate that applies to the top, or fourth, individual income tax bracket, LB754 would cut the rate on the third bracket incrementally from 5.01 percent to 3.99 percent by tax year 2027.

Sen. Wendy DeBoer of Bennington introduced an amendment that further would decrease the rate on the third bracket to 3.75 percent, beginning in tax year 2028. She said the change would ensure that Nebraska’s tax code remains progressive, with top earners paying at a higher rate than individuals whose incomes are significantly less.

The amendment failed on a vote of 13-25.

As amended on general file, LB754 would modify the School Readiness Tax Credit Act to increase the amount of tax credits available for qualifying child care providers and employees from $5 million to $10 million annually. Linehan’s amendment would reduce that amount to $7.5 million.

The bill also would allow individuals, estates, trusts and corporations to apply for a new, nonrefundable state income tax credit of up to $100,000 for qualifying contributions they make to eligible child care programs.

Under Linehan’s amendment, the state Department of Revenue could approve $2.5 million in credits annually, rather than $10 million as under the original measure.

In addition to the credit for businesses, LB754 would authorize the department to approve $15 million each year in refundable income tax credits intended to help Nebraska parents and guardians pay for child care.

Conrad introduced an amendment that would strike the business credit and instead direct the $10 million originally dedicated to that measure to the latter credit that would go directly to families.

Conrad said the switch would give more children access to quality child care without changing the cost of the bill, which she said already is “exceedingly generous in terms of … bestowing corporate tax benefits.”

Her amendment failed on a vote of 16-19.

After voting 41-0 to adopt Linehan’s amendment, lawmakers advanced LB754 to final reading on a vote of 37-4.