Nebraska Governor Pete Ricketts called for tax relief for Nebraskans in a Feb. 14 press conference, citing it as critical action for the 2022 legislative session.
“I’ve now passed four budgets with the legislature,” Ricketts said. “The average of those four budgets across eight years is 2.5% growth in spending. If you look over a 20 to 30 year period, our average revenues grow anywhere between 4 to 5%.”
Ricketts said this gap between government spending and revenue allows room in the budget to offer sustainable tax relief for Nebraskans.
In his press conference, Ricketts highlighted and endorsed three bills.
According to the Nebraska Department of Revenue, the bill provided a 6% credit for the 2020 tax year. For future years, the credit percentage will be set based on the amount of General Fund revenue and increases.
The rate rose to 25.3% for the 2021 tax year, amounting to nearly $548 million in property tax relief funds, according to Ricketts.
The funding for this program is scheduled to fall by nearly $200 million by 2024. The implementation of LB723 would stabilize the funding for future fiscal years.
“Put a floor underneath that $548 million, so that Nebraskans will always get that credit back on the taxes they pay into their local school district,” Ricketts said.
The second bill, LB825, would accelerate the phasing out of Nebraska’s taxes on social security.
“We are one of the few states that actually taxes social security benefits,” Ricketts said. “Last year we passed a bill to phase those taxes out over a period of ten years.”
LB825 would phase out the taxes over a period of five years.
According to Ricketts, the social security tax provides an incentive for seniors to leave Nebraska.
“We want our grandparents to stay here in Nebraska so that they can be with their families, rather than going to a different state where they’ve got a better tax climate,” Ricketts said.
Rickett’s final endorsement, LB939, would decrease income tax rates in Nebraska to increase competitiveness with other states. Under LB939, the rate would lower from 6.84% to 5.84% over the course of five years.
“If we have money that is in excess of what we need to run state government, we should give back to the people,” Ricketts said. “It’s the people’s money. It’s not my money, it’s not the legislature’s money, it’s not my agency’s money. It’s the people’s money.”
According to Ricketts, this bill will help over 60% of Nebraskan families deal with inflation and other monetary issues. He said that the only state around Nebraska that has a higher income tax rate is Iowa, but their governor has already announced plans to reduce it to 4%.
Ricketts said his goal is to lower the tax rate on businesses to match.
“This proposal won’t fix every problem, but it’s a big step in the right direction,” said Adam Kavan, owner of Kavan Custom Construction in Lincoln. “It has the potential to change our lives.”
Kavan is a fourth-generation Nebraska farmer passionate about small business and family. In the press conference, he spoke about how tax relief would benefit his family and business by helping address inflation, employment and supply chain issues.
“[These bills] would allow us to make some strategic investments in our own business like hiring, developing our workforce, it’ll give money back to Nebraska families,” Kavan said. “If you give businesses and families in the state the materials to build, we will continue to do just that. We will continue to build Nebraska.”
Bryan Slone, president of the Nebraska Chamber of Commerce, emphasized the need for Nebraska to remain competitive as other states across the country lower their income taxes.
According to Slone, there are eight states that have no income tax, three states that have already enacted policies to start the journey to a zero income tax rate and eight additional states where governors have announced an intent to lower or eliminate rates. To be competitive, he said Nebraska has to follow.
“In the last three years, it became clear that you can live and work anywhere you want to,” Slone said. “We live in the state with the greatest quality of life in the world. We should be attracting young people and the workforce like no other state.”
According to Slone, the future of Nebraska communities depends on whether the state can attract and retain 18-34-year-olds, and tax rates are a large factor.
Scott Gubbels, executive director of tax and renewable energy for Nelnet, said in the press conference that Nebraska’s outdated system also becomes a challenge for attracting talent, investors and startups.
“As Nebraskans, we compete, we work hard, we collaborate and innovate,” Gubbels said. “When faced with challenges, we adapt and overcome. We seek opportunities to create success. In order to compete and win, we need to revise the game plan from time to time and now is that time. Nebraska has a unique opportunity to make a game-changing move by supporting tax-modernizing policies.”
However, the proposed tax cuts face criticism from organizations such as OpenSky Policy Institute.
Craig Beck, OpenSky’s senior fiscal analyst, said that 84% of people getting a tax break under the bills make $125,000 or more, adding up to $900 million in lost federal revenue by 2027.
According to Beck, cutting state revenue would impede Nebraska’s ability to invest in schools, public safety, and infrastructure.
“We’re not sure if the state can afford it. We really have concerns about the sustainability of those proposals moving forward,” Beck said to KETV Feb. 14. “If revenue is not there in the future, then that means service cuts.”
Lawmakers began the first round of debate on the income tax proposal this week.
The Social Security tax phase-out and the property tax credit both await second-round debate.