More property, income tax debates expected in 2018 session

LINCOLN — Despite a state budget crunch and a push to lower property taxes, Nebraska lawmakers will likely face another debate over income taxes in next year’s session.

Key lawmakers say they’re hopeful they can reach a compromise on a package and overcome the sharp divide that kept them from passing any major tax measures earlier this year.

A proposal to reduce income tax rates and slow the growth of property taxes stalled this year after rural senators argued that it didn’t provide enough benefit to agricultural landowners. Some urban lawmakers noted most of the savings would go to the wealthy and warned it could harm future budgets. Supporters noted that the income tax cuts would only apply following years in which the state collected excess revenue.

“There’s no room for ‘My way or the highway,’” said Sen. Jim Smith of Papillion, the Revenue Committee chairman who has advocated for income tax cuts. “Unless we can find compromise, the votes are simply not going to be there.”

Smith said he’s concerned that the state relies too heavily on agriculture to drive its economy and needs to diversify with other industries. State officials say low commodity prices are partially to blame for state revenue that has fallen short of expectations, leaving the state with a projected $195 million shortfall.

The plan lawmakers debated this year would have lowered Nebraska’s top personal and corporate income tax brackets, adjusted the way agricultural land is valued for tax purposes, capped statewide property tax growth and expanded the earned income tax credit for low-income residents.

Some groups question whether lawmakers will pass anything this year. One leading business organization, the Nebraska Chamber of Commerce and Industry, will advocate for income tax cuts, but a spokesman said they’re more likely to score victories on job training legislation.

Many residents have a stronger negative reaction to property taxes because they pay them directly, whereas most income taxes are deducted from paychecks and aren’t as readily noticed, said Jamie Karl, the group’s vice president for public affairs and policy.

“Part of what we’re facing here is an education process,” he said. “I can tell you to the penny how much I paid in property taxes on my house for the last three years. I can’t tell you what my income tax was.”

Karl said his group has hosted more than two dozen fall forums throughout the state for businesses, and the state’s tax rates ranked as a top concern, second only to a workforce shortage. Workforce problems are a longer-term issue, he said.

Sen. Curt Friesen of Henderson, a farmer and Revenue Committee member, said he’s optimistic lawmakers will find an agreement, but argued that any income tax package would also have to reduce property taxes. Property taxes on agricultural land increased nearly 164 percent between 2006 and 2016, according to the Nebraska Department of Revenue.

Friesen said any changes will likely have to be phased in over years.

“If I can get a property tax deal, I’ll take it any way I can get it,” he said.

Speaker of the Legislature Jim Scheer said he will continue to enforce his requirement that senators disclose how they plan to pay for any measures that cost money or reduce state revenue.

Scheer, of Norfolk, said lawmakers may be willing to approve a tax cut that goes into effect once revenues improve, but next year’s expected shortfall will make it difficult to pass anything more ambitious.

“My best guess would be that if they bring legislation with an immediate impact, it would not have an opportunity to pass,” he said. “I don’t know how you’d fund it.”