Under LB 364, a bill before lawmakers today to create a tax credit for donations to private school scholarship programs, those who give to scholarship granting organizations would get a 14.5 times greater tax benefit than those who make other types of charitable donations.
An individual, couple or business under LB 364 could receive a credit equal to 100% of their total contributions or 50% of their income tax liability, whichever amount is smaller. There are, however, no limits on donation amounts. This means that if there are enough credits available, a corporation with an income tax liability of $1 million could donate $500,000 to a private scholarship granting organization and receive a $500,000 tax credit. Or, if a couple has income tax liability of at least $20,000 and they donate $10,000 to a private scholarship granting organization, they would receive a state tax benefit of $10,000.
On the other hand, if the same couple makes a $10,000 donation to a non-profit private or public school foundation, the potential value of their tax benefit would be the amount of their donation multiplied by the tax rate in the bracket in which that income would have fallen. If that income falls in the state’s top income tax bracket of 6.84%, the tax savings would be $684.
Under committee AM 762, the scholarship tax credit proposed in LB 364 would reduce state revenues by $5 million annually. The amendment also would create a separate $5 million tax credit for contributions to qualified early childhood education or child care programs — a provision originally introduced in LB 531.
An important factor to keep in mind as senators debate LB 364 and other tax-cut measures this session is that any revenue reductions lawmakers pass could result in a commensurate reduction of federal relief dollars, as per a stipulation in the American Recovery Plan. Guidance from the U.S. treasury regarding the use of state surplus dollars to cut taxes is pending and until it comes any tax reduction passed by Nebraska lawmakers could put the state in position to experience a double fiscal hit as it could end up forgoing revenue from the tax cut and then also have to refund an equal amount of federal dollars.