LINCOLN — A panel of state lawmakers took their first swing at offering up a package of income tax cuts on Friday and came up mostly empty.
Senators on the Legislature's Revenue Committee, which guides state tax policy, said too many unanswered questions remain about the cost of an income tax bill pushed by state business groups.
“I think we're going to explore different options right now,” said State Sen. Galen Hadley of Kearney.
Friday marked the first time the Revenue Committee discussed measures to cut income taxes, which has been the top goal of the state, Omaha and Lincoln chambers of commerce, as well as Gov. Dave Heineman.
The chambers and governor maintain that the state's top income tax rate of 6.84 percent is a disincentive in recruiting businesses and attracting candidates for high-paying jobs. They want the top rate reduced to under 6 percent, though opponents say there's no proof that cutting rates inspires economic growth.
Among nearby states, only Iowa has a higher top income tax rate than Nebraska. South Dakota and Wyoming are among the states that levy no state income taxes.
The proposal backed by the chambers, Legislative Bill 1097, came in with a budget-busting price tag of $594 million a year when fully implemented.
The chief sponsor of LB 1097, Omaha Sen. Burke Harr, said Friday that cost is unsustainable and that he is working on less-costly options.
Fremont Sen. Charlie Janssen said it appears the committee doesn't have an appetite to lower rates, so he's focusing on adjusting brackets so middle-class taxpayers won't pay the highest rate.
Right now, a married couple with as little as $58,000 in adjusted gross income pays the highest rate of 6.84 percent.
Both Janssen, a candidate for state auditor, and Omaha Sen. Beau McCoy, a candidate for governor, said that with median family incomes in the state at about $52,000, that top rate should kick in at much higher incomes. McCoy suggested the cutoff at $84,000 or more.
Said Janssen: “We're taking a whack at a lot of (middle class) people right now.”
But it was unclear what an adjustment of brackets like that might cost. It also was unclear how much money the Legislature can dole out in tax cuts without impacting state services and other priorities, such as reforming the state prison system.
The money picture is expected to clear up by the end of next week, when a state tax forecasting board gives an updated prediction on the state's economy and tax revenue.
Hadley was among the senators on Friday who said he was not yet convinced that major adjustments in income tax rates should happen this year.
The Tax Modernization Committee, which he headed last year, recommended against an income tax cut. And Hadley said many more people wanted a property tax cut.
The Revenue Committee did advance one income tax measure on Friday.
LB 987 would require that state income tax brackets be indexed for inflation, something the federal government does but that hasn't been done by the state. It results in “bracket creep,” giving taxpayers an unexpected tax increase when their incomes rise into a higher tax bracket. The bill also increases state exemptions on Social Security income, allowing more people to get a tax break.
The bill would provide an $8 million tax cut next year but that would rise to $52 million within four years. After 10 years, the cut would amount to $100 million, according to Hadley.
“This is a significant thing for the taxpayers of Nebraska,” he said.
The committee also advanced an amended version of LB 1092 on a 6-2 vote. That bill would permit the state to issue highway construction bonds of up to $200 million to speed up work on the state expressway system and other road-widening projects, including the proposed bypass around Lincoln.