Opponents hit cuts to income tax, revamping ag property tax

April 21, 2017, 4:45 a.m. ·

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Sen. Jim Smith talks to reporters after Friday's debate (Photo by Fred Knapp, NET News)

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A plan to cut income taxes and restrain ag land property tax values ran into opposition Friday in the Legislature.


Sen. Jim Smith, chairman of the Revenue Committee, is the leading supporter of the tax plan endorsed by the committee and Gov. Pete Ricketts. Smith said Nebraskans are dissatisfied with income taxes and property taxes, and touted the plan as a way to stimulate growth. “To not consider the bill that is before us today is to embrace the status quo and to ignore the greater vision for Nebraska. We can do better in this state,” Smith said. “We have a diverse state. And we need to make certain that businesses across this state are united for a common goal, and that is to create jobs, to grow the economy. Because it’s only through that that we’re able to compete with our neighboring states and to see the long term solutions to property taxes and the burdens on our businesses and our families.”

The bill would lower the top individual income tax rate from just under seven to just under six percent, and the top corporate rate from just under eight percent to just under six. Those changes would be phased in over at least ten years, and only triggered if projected state revenues rose by 3.5 percent or 4 percent, respectively. The bill would also limit aggregate statewide valuation increases of ag land for property tax purposes to three and a half percent a year.

The bill would also change the method of valuation, from being based on comparable sales of land, to being based on the income-producing potential of the land. Sen. Steve Erdman said that would be fairer. “The current method of valuing ag land takes no consideration of what the land is capable of producing. It’s a regressive tax. And they don’t ever send you a notice or put a call out and say ‘Can you pay more taxes?’ They just send you the notice and say ‘Send it in,’ Erdman said. “And so consequently, the taxes we pay aren’t commensurate with the amount of income we produce off of the land. So changing from a market to an income approach is a fair way to do it. We’re talking about fairly valuing ag land so that it’s representative of what the land will produce.”

Sen. Kate Bolz was among those speaking against the plan. “We not only have a responsibility to respond to our stakeholders’ interest in tax relief. We also have a responsibility to take care of the institutions that our constituents hold so dear, ranging from public schools, to higher education, to health care initiatives,” Bolz said. “Those commitments are at risk when we put triggers into place when we project them into the future.”

Sen. Patty Pansing Brooks gave an example from the Great Recession of how the triggers could misfire. “The triggers sound good. But in 2008, the projected growth that year for our state was 3.8 percent. So under this bill, a trigger would have been initiated. And in actuality the growth was negative 4.2 percent,” Pansing Brooks said. “So an auto trigger is dangerous unless we’re dealing with actual numbers.”

Sen. Mike Hilgers supported the bill, saying it offers a chance to keep people in Nebraska and attract newcomers to the state. “I know it’s not perfect for everyone. It may not be perfect for anyone. But it is a positive step forward,” Hilgers said.

But Sen. Dan Watermeier said he could not support the bill in its current form. “I still believe we have to be talking about $10 of property tax relief to a dollar of income. And the way the bill is written now, it’s completely the opposite,” Watermeier said, adding “I would urge Nebraskans that are watching today -- I would urge Nebraskans and the lobby they represent -- to let us know if that’s really what they want.”

Smith disputed Watermeier, saying he thinks the bill offers $2 of income tax relief for every dollar of property tax relief. Watermeier said he’s working on an amendment to raise the triggers using actual revenues and expenditures, and raise the ratio of property to income relief.

Senators took a test vote of sorts, voting on whether or not to send the bill back to committee for more work. Supporters generally opposed the move, while opponents supported it, although there appeared to be exceptions. The move failed on a vote of 15-29, with five senators either missing or not voting.

This is how senators voted on a move to send the bill back to committee for more work. Supporters of the bill generally voted no; opponents generally voted yes, although there appear to be some exceptions.

It would take 17 opponents to block the bill with a filibuster, or 33 senators to overcome a filibuster. Smith said he expects senators to return to the bill after dealing with the state budget next week.