Legislative session marked by fiscally responsible choices

Legislative session marked by fiscally responsible choices

The Legislature this session considered a wide variety of bills related to income, sales and property taxes and in the end, lawmakers passed measures that will modernize the tax code, help low- and middle-income Nebraskans, reduce property taxes, restore some aid for K-12 education and increase aid for pre-K education.

Regarding the overall budget

Based on legislation signed into law as of Monday morning, the Legislature had enacted about $413 million of combined spending increases and tax reductions through the upcoming biennium. About 41 percent of $413 million comes from tax cuts and 59 percent comes from spending increases.

The Legislature balanced the budget for the current biennium and left a $693 million balance – which is about 16 percent of the General Fund — in the rainy day fund. Those reserves may prove crucial in the coming years, as a $170 million shortfall is currently projected for the upcoming biennium.

Sweeping tax cut measures rejected

Measures to cut Nebraska’s income tax rates and reduce agricultural land valuations for determining property taxes were rejected by the Revenue Committee and never made to the main floor of the Legislature for debate.

OpenSky analysis showed the proposed cuts to income tax rates would have predominantly benefited the state’s highest-earners, done little if anything to improve the economy, decimated the state budget and led to K-12 cuts and higher property taxes.

Our research on the agricultural land valuation proposals showed the measures would have created revenue losses for schools, community colleges and other localities, wouldn’t have helped many agricultural land owners, and would have actually increased property taxes for most Nebraskans.

Indexing income taxes and the property tax credit

The largest tax measure passed this session was LB 987, which modernized the tax code by indexing the state’s income tax brackets for inflation. Indexing helps prevent “bracket creep,” which occurs when inflation pushes peoples’ income into higher tax brackets while their actual purchasing power doesn’t increase. LB 987 will help keep low- and middle-income earners from being pushed into higher tax brackets because of bracket creep. The measure also exempted more Social Security and military retirement benefits from taxation.

In the state’s budget, lawmakers increased Nebraska’s property tax credit by $25 million. As lawmakers heard repeatedly as they toured the state as part of a comprehensive study of our tax code, property taxes are the tax issue that concerns Nebraskans most.

Rainy day fund protected and subsidy review bolstered

The Legislature rejected measures that would have brought the rainy day fund below minimum recommended levels as lawmakers made it clear that a priority this session was to maintain a strong rainy day fund to help the state weather economic downturns.

The Legislature also created the Tax Incentive Evaluation Committee to help ensure the state’s business subsidy programs work as they should.

State aid restored, pre-K bolstered and a clearer vision for education

The Legislature restored some K-12 aid and increased funding for pre-K education. Lawmakers also eliminated some regressive components of state school funding, which our research showed were sending more school aid to low-poverty districts rather than to the high-poverty districts that need the additional dollars.

Looking ahead

This interim, the Revenue Committee will look at what can be done to lower property taxes, the Tax Incentive Evaluation Committee will begin its review and the Education Committee will start generating ideas for new strategies for education and education funding.

And when the Legislature convenes in January, there will be at least 17 new faces in the Unicameral, along with a new governor and several other new state elected officials. We look forward to working with them and the returning legislators and leaders.