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Income Tax Cuts in Nebraska: Who Benefits, Who Loses Out?

Some analysts say a proposed income tax cut only would benefit wealthy Nebraskans. (401(k) 2012/Flickr)
Some analysts say a proposed income tax cut only would benefit wealthy Nebraskans. (401(k) 2012/Flickr)
March 20, 2017

This is the first in a series of reports over the next several Mondays that examines Nebraska’s budget priorities: who stands to benefit and who could lose out?

LINCOLN, Neb. – Nebraska lawmakers came into the session faced with a $1.2 billion budget shortfall, and while proposed income tax cuts might sound like an appealing part of the solution, some analysts contend the consequences are too great.

Legislative Bill 337 reduces the state's top income tax rate about 1 percent, which supporters say would provide tax relief for middle class families and benefit the economy.

But Renee Fry, executive director of the OpenSky Policy Institute, contends it's a case of misplaced priorities.

"We talk about the budget situation and that we have a huge budget shortfall that we have to deal with but yet we're having this conversation about cutting taxes on top of it?” she states. “People are absolutely shocked."

According to the Institute on Taxation and Economic Policy, while the top 1 percent of earners would get about $5,800 a year, middle-income earners would only receive about $39. And the lowest-earning Nebraskans would be essentially left out of the income tax cut.

Fry says the plan would reduce money for schools, public safety and other essential services, and eventually move the tax burden to homeowners.

"What we would expect to see in future years if we do continue to cut revenue, that's either going to cause cuts in services or it's going to result in a tax shift where we become more and more reliant on property taxes," she stresses.

The proposed income tax cut would be phased-in incrementally, and is paired with a companion measure that would change how the state values farmland for property taxes.

John Hansen, president of the Nebraska Farmers Union, says the plan doesn't go far enough for farmers straddled by increasing land values and lower profits. He believes property tax reform should be a top priority.

"We are no longer on the wrong side of the road,” he states. “We are now in the ditch. because we are more out of whack than we have been for a very, very long time. And there needs to be a substantial correction to get back into a more fair and balanced state tax system."

Lawmakers soon will begin reviewing agency budget requests and begin drafting budget bills. Join us next Monday when our series will cover the cautionary tax tale of Kansas and Oklahoma.

Mary Kuhlman, Public News Service - NE