LINCOLN — With all the discussion of state taxes this year — the Nebraska Legislature’s study and Gov. Dave Heineman’s pledge to make tax cuts his priority in his final year in office — one thing has been nearly forgotten.
Nebraskans will be getting a tax cut in 2014.
Twenty months ago, lawmakers passed a package of income tax cuts that goes into effect Wednesday.
They are not large cuts — a married couple with $50,000 in adjusted gross income would save about $67 a year — but it’s still a reduction.
It amounts to about a $55.6 million cut, or 2.2 percent of what Nebraskans paid in state income taxes last year.
The tax cuts, which came with the passage of Legislative Bill 970, go into full effect over the next two years.
Additionally, income tax rates were cut slightly in 2013 for low- and middle-income households, applying to adjusted gross incomes of less than $27,000 for individuals and $54,000 for married couples filing jointly.
Beginning in 2015, the income tax brackets will be adjusted so that fewer taxpayers pay higher rates.
For instance, the top rate of 6.84 percent will not apply until incomes exceed $29,000 for an individual and $58,000 for a married couple, a slight increase from the current thresholds of $27,000 and $54,000, respectively.
In the end, it will translate into a $145 cut for a couple filing jointly with income of $100,000 or higher.
“Any time we can provide tax relief for Nebraskans, I think that’s helpful,” Heineman said.
He called the tax cuts passed in 2012 “modest but significant” and has called for even larger cuts in 2014.
State Sen. Galen Hadley of Kearney, chairman of the Legislature’s Revenue Committee, said “forgotten tax cut” was an apt description of the 2012 bill.
The legislation in its original form was Heineman’s proposal to cut individual income taxes more deeply but also eliminate the inheritance tax levied by counties and to lower corporate income tax rates.
But the bill ran into a firestorm of opposition from county officials, who said eliminating more than $40 million a year in inheritance taxes might force them to raise property taxes. So that idea was scrapped.
Then lawmakers began questioning if the state could afford the $130 million-a-year price tag of the proposed personal and corporate income tax cuts, particularly while the economy was still sputtering.
After a lot of long meetings, it was determined there might be room in the budget for about $50 million in tax cuts, said then-Sen. Abbie Cornett of Bellevue, who sponsored the bill for Heineman.
So the corporate income tax cut was scrapped, and the individual income tax cuts were pared back and focused solely on low- and middle-income taxpayers, in part to maximize political support.
“There was not the money to do everything the governor wanted,” Cornett said.
One lawmaker said the passage of LB 970 was one reason he didn’t jump behind Heineman’s proposals this year to eliminate or significantly cut income taxes.
“I keep trying to remind everyone in the Legislature who was clamoring for income tax cuts that we have already cut income taxes. For us to embark on radical changes again was irresponsible,” said Sen. Heath Mello of Omaha, chairman of the budget-writing Appropriations Committee.