After failing to advance tax cuts proposals twice before, the Nebraska Legislature passed a comprehensive tax cut package that reduces rates on individuals and corporations, provides property tax relief and ends the tax on Social Security benefits.
The comprehensive bill resulted from a combination of several pieces of legislation introduced to provide tax relief. Together, the proposals in Legislative Bill (LB) 873 will result in over $900 million in tax breaks when fully implemented.
The measure was signed by Gov. Pete Ricketts (R) on April 13 at a Nebraska Capitol rotunda ceremony.
At the signing ceremony, Ricketts said, “LB 873 is the biggest tax relief package in state history. It will provide 12 times more annual tax relief than any tax bill passed in any prior administration. Senior citizens, families, ag producers and small businesses will see major tax savings in the coming years as a result of LB 873. Thanks to everyone who supported this historic tax relief package.”
Sen. Lou Ann Linehan (R-39-Elkhorn) told Nebraska Cattlemen on the “Herd it Here” podcast the bill is an excellent start to reducing taxes in the state, but she noted Nebraska will still have higher taxes than neighboring states.
Under the bill, the top personal income tax would fall from 6.84 percent to 5.84 percent over five years. If you are single or married but filing separately, you will qualify for this cut if you make over $29,000. For married couples filing jointly, the tax cut applies for those making $58,000 and over, and for people filing as head of household, it applies for those making over $43,000.
Another piece of the bill, advocated for by Sen. Brett Lindstrom (R-18-Omaha), would gradually eliminate the taxes on Social Security benefits. The exemption would reduce the adjusted gross income by 40 percent starting in 2022 and increase to 100 percent in 2025. Lindstrom stated Nebraska is one of 13 states that taxes Social Security benefits, and the tax break will benefit 325,000 recipients.
LB 873 would also decrease the corporate income tax rate. This provision was similar to the personal income tax cut, reducing the top corporate income tax rate to 5.84 percent for income over $100,000 over the next five years. The corporate rate that applies to the first $100,000 of taxable income remains at 5.58 percent.
The bill would also amend the Nebraska Property Tax Incentive Act provisions to change the calculation of total credits available for taxes paid to school districts to $560.7 million and create a new tax credit for property taxes paid to the local community college. This year, $50 million was allocated, providing credits for taxes paid to community colleges, with the allocation growing to $195 million beginning in 2026.
Both credit programs would grow with property valuations up to a maximum of 5 percent, with the K-12 credits starting in 2024 and the community college credits in 2027.
Nebraska Cattlemen told WLJ in an email they are appreciative to have played a role in passing the tax package “across the finish line.”
“Specifically, the $205 million in property tax relief for Nebraskans who are upset with paying high taxes for community colleges is a direct result of the work we completed last winter in the Nebraska Cattlemen taxation working group,” said Brenda Masek, president of Nebraska Cattlemen.
“From the expansion of crucial property tax relief to lowering personal and corporate income taxes to make Nebraska more competitive with neighboring states and expediting the elimination of income taxes paid on Social Security, nearly all Nebraskans will undoubtedly benefit from this landmark legislative package.”
An analysis by the Omaha World-Herald showed the amount of property tax relief could reach $1.6 billion over the next 10 years. The analysis showed that with this bill and others before it, the amount of direct property tax relief statewide would equal about 21 percent for 2023. It would vary by location and circumstances but remain at the same level for the next 10 years.
The state currently has the Property Tax Credit Fund, a property tax program based on the property’s valuation, which was created in 2007. The credit appears as a line on the annual property tax statement. The program provides $313 million a year in credits now, up from $105 million when it began.
Additionally, low-income seniors and disabled Nebraskans can use the homestead provisions to reduce their property taxes. Credit is based on adjusted gross income and the assessed value of the homestead. Homestead exemptions are budgeted at $131.7 million for 2023.
Revenue Department officials estimate the tax package would reduce state revenues by more than $867 million by the fiscal year ending June 30, 2027, the final year of implementation.
Open Sky Institute, a nonpartisan research organization, said on their website the revenue losses would “likely force future cuts to schools, health care and other key services or increases in other taxes and fees.” — Charles Wallace, WLJ editor
