LINCOLN — Lawmakers may include a state income tax cut in their property tax relief plan.
Thursday evening during a second closed-door planning session by the Legislature’s Revenue Committee, legislators discussed the possibility of slightly reducing state income taxes, as well as corporate income taxes, to gain more support for their proposed $500 million plan.
Cutting income taxes has long been the top priority of the state’s business groups, like the Nebraska Chamber of Commerce and Industry. They say that the state’s top state income tax rate of 6.84 percent discourages talented workers from locating in Nebraska. Corporate income taxes — which are paid by some of the largest companies — also draw complaints because the rate, 7.81 percent, is much higher than that paid by small businesses, which pay their taxes as personal income tax.
The reduction discussed for both was to 6.75 percent.
State Sen. Brett Lindstrom of Omaha, who prompted the discussion, said support of the state’s business sector will be essential if the property tax relief package is going to win approval.
“I think it makes it a lot easier to pass,” said Elkhorn Sen. Lou Ann Linehan, who chairs the Revenue Committee.
The last time Nebraska made a major change in tax policy — Legislative Bill 1059, passed in 1990 — it took the support of four major groups — farmers/ranchers, urban homeowners, educators and business — that often have differing priorities.
Farm groups are already screaming for property tax relief, saying Nebraska producers pay the nation’s highest property taxes, making it hard to turn a profit and remain competitive. Homeowners in Omaha and Lincoln are also complaining after seeing steep increases in valuations.
Linehan has set a goal of crafting a property tax package by mid-April so lawmakers have plenty of time to debate the issue before they adjourn in June. Last week, the committee agreed on some general principles in the plan, which included a ½-cent increase in the state sales tax rate, which would be the first increase in 17 years.
Much of Thursday night’s meeting was spent discussing a long list of sales tax exemptions that could be eliminated to raise more state revenue and offset local property tax cuts. Taxing pop and junk food, pet-related services and lawn care got a general thumbs-up from the eight-member committee, while imposing sales taxes on hair care, massages and food served by universities and hospitals did not.
Albion Sen. Tom Briese, who has supported taxing more services, said he wants to focus on consumer-oriented services that don’t have a potential for “border bleed” — pushing sales to bordering states where taxes may be lower.
The committee has abandoned raising taxes on beer, wine and liquor after it prompted a huge backlash from craft brewers. But on Thursday, they discussed raising the state’s cigarette taxes, which are currently 64 cents a pack, but keeping them lower than in Iowa, which charges $1.36 a pack.
Also discussed Thursday were bills introduced by Sens. Curt Friesen of Henderson and Mike Groene of North Platte that would revamp the state’s program for state aid to K-12 education. Such bills could become the vehicle to funnel the property tax relief, by increasing state aid to offset lower property taxes.
No decision was made Thursday on how to deliver the tax relief, and Linehan asked the two senators to get together to see if they could agree on a single approach.