LINCOLN — State senators have been grumbling for more than a week that the state cannot afford Gov. Dave Heineman's $130 million-a-year tax cut package.
A new amendment now recognizes that.
State Sen. Abbie Cornett of Bellevue, who introduced the tax cut package on behalf of the governor, proposed changes Monday in Legislative Bill 970 that would trim its cost by 31 percent.
Cornett would delete a proposed reduction in corporate income taxes and drop the elimination of inheritance taxes, which Heineman proposed. That is a tax paid to counties, and county officials have argued that eliminating the $40 million to $48 million in annual revenue from inheritance taxes would translate into an increase in a more despised tax: local property taxes.
What's left would be cuts in individual income taxes for low- and middle-income taxpayers who earn less than $30,000 per individual or $60,000 per household, representing about $90 million in cuts annually.
The amendment would leave intact the governor's stated goal of tax relief for “hard-working, middle-class Nebraskans.”
“It's a first step,” Cornett said of the proposal. “I have some other ideas. There's going to be a lot of give and take on everybody's part.”
The governor did not respond to a message left with his office Monday evening.
Major changes in his tax cut proposal would set up a battle with the conservative Republican governor, who has insisted — despite the state's still-lackluster tax receipts — that the state's top priority should be cutting taxes.
But Cornett's proposal provides a potential middle ground in the debate.
Heineman's three-part original proposal would cut a total of $326 million in taxes over the first three years.
As recently as Wednesday, Heineman said that if state lawmakers control state spending at the historic growth rate of 3.2 percent, the state can afford his tax cut package, as well as new spending on the state's troubled child welfare system and new construction projects for the University of Nebraska.
But the Legislature's Appropriations Committee has drawn up a preliminary budget that leaves only $17.6 million for lawmakers to spend next year on proposals such as the tax cut package. The committee's preliminary plans do include spending $17 million on child welfare and $6 million for NU projects.
Under Cornett's amendment, LB 970 would cost $224 million over three years, including $37 million in the first year. That's about $20 million more than the Appropriations Committee has left to spend.
Members of the Legislature's Revenue Committee are scheduled to meet Tuesday or Wednesday to vote on the amended tax cut proposal, but at least a couple of members wondered how the state would afford it.
“I want to see how it all fits together,” said Valentine Sen. Deb Fischer.
“I haven't crunched the numbers on it yet. Right now, our fiscal projections are looking pretty sorry,” said Columbus Sen. Paul Schumacher.
When the State Economic Forecasting Advisory Board met Feb. 24, it made no changes in its projections of state tax receipts, a signal that the state's economy is still in slow recovery mode.
That prompted two key state senators — Lavon Heidemann, the Appropriations Committee chairman, and Greg Adams, who heads the Education Committee — to express doubts that the state could afford the tax cuts.
Omaha Sen. Heath Mello, a Democrat who sits on the budget-writing Appropriations Committee, said he is still waiting for the governor to explain how the state can afford the tax cut package.
“It's fiscally irresponsible for the governor to push anything without telling us how we're going to afford this,” Mello said. “Glib sound bites don't work in this situation.”
Heineman's original proposal, if passed, would drop corporate income taxes by 13 percent for businesses with incomes of over $100,000.
His plan would adjust income tax brackets and lower the rate on the highest income tax bracket from 6.84 percent to 6.7 percent. Right now, Nebraska has the highest top bracket rate of any of its neighboring states except Iowa (Wyoming and South Dakota have no state income tax).
Under Cornett's amended plan, the top rate would remain at 6.84 percent. But her plan would keep intact the governor's other proposals for individual income taxes, such as adjusting tax brackets and reducing income taxes for middle- and low-income Nebraskans.
For instance, a married couple with two children and an adjusted gross income of $30,000 would get a yearly state income tax break of about $42 under both proposals. A similar couple with $50,000 in earnings would see a $126 cut.
Heineman has pushed the tax cut package by saying that Nebraska can do better than its No. 30 ranking nationally in its business tax climate, as compiled by the conservative Tax Foundation.
The state chamber of commerce and other business groups have said Nebraska businesses have a hard time recruiting workers for good-paying high-tech jobs because of the state's relatively high personal income taxes.
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