Lawmakers gave first-round approval on Feb. 24 to a bill that would cut Nebraska’s top personal income tax rate after amending it to include a proposed income tax rate cut of the highest societies.
LB939, introduced by Elkhorn Sen. Lou Ann Linehan, would reduce Nebraska’s top personal income tax rate in three stages, from the current 6.84% to 5.84% by tax year 2025.
The rate applies to taxable income of $29,000 or more for individuals and $58,000 or more for those who are married filing jointly.
Linehan said the proposal would help the state attract workers and businesses and provide a tax cut for Nebraska’s middle class at a time when the state collects hundreds of millions of dollars more in revenue than needed to finance its operations.
“When we collect too much money from people, we have to send it back to people,” she said.
The State Department of Revenue estimates that LB939 would reduce general fund revenue by $61.7 million in fiscal year 2022-23 and $176.5 million in fiscal year 2023-24 . By fiscal year 2026-2027, the reduction would reach $363.4 million.
Linehan said lawmakers may need to adjust LB939 on some files to account for updated revenue projections and the Appropriations Committee’s proposed budget.
A Revenue Committee amendment, passed 39-2, added the provisions of LB938, also introduced by Linehan. The measure would gradually reduce the state’s top corporate income tax rate, which applies to taxable income over $100,000, from 7.5% currently to 5.84% by 2026 tax year.
The amendment would continue the phased reduction of the highest corporate rate approved by the Legislative Assembly last year, Linehan said.
The department estimates that the reduction in corporate rates would reduce general fund revenue by $1.9 million in fiscal year 2022-23, by $10.6 million in fiscal year 2023-24 , $29.3 million in fiscal year 2024-25 and $53.5 million in fiscal year 2025-26.
Lincoln Chairman Mike Hilgers backed LB939, saying the tax cut would give middle-class families more disposable income they could use to save for a home or invest in a business. Allowing individuals to keep more of their money is especially important in a time of rapid inflation and high housing costs, he said.
Albion Senator Tom Briese also supported the bill. He said Nebraska’s top personal income tax rate is higher than the top rate of all but one neighboring state and applies to taxable income from a “ridiculously” low amount. .
Briese said the high rate discourages people and businesses from moving to the state.
“If we want to develop Nebraska, we need a competitive tax structure,” he said, “and this bill represents a step in that process.”
Senator Megan Hunt of Omaha opposed the bill, saying millionaires and billionaires would benefit the most from a reduction in the top personal income tax rate.
“If this was really about a tax cut for middle income people…then we would support a bill to create additional tax brackets, not cut rates for middle income people high,” she said.
Hunt said a state’s minimum wage, types of jobs available, and housing and childcare costs — not its tax rates — are what young families and professionals consider. when they decide to move.
Omaha Senator Machaela Cavanaugh said she opposes further corporate tax cuts but would support a personal income tax cut as long as she benefits to the middle class of Nebraska.
Cavanaugh introduced an amendment that she said would remove the corporate income tax provisions from the committee amendment and change the brackets and rates of personal income tax to provide a reduction. higher tax burden for people whose taxable income is less than $200,000.
A new top bracket, with a rate of 8.01%, would apply to families with taxable income over $1 million.
Senator John Cavanaugh of Omaha supported the amendment, saying it would provide a substantial benefit to people with incomes near the state median of around $60,000. He said Linehan’s proposal would bring little or no benefit to those Nebraska residents.
Families with taxable income of about $1 million would still get a tax cut under the amendment, Cavanaugh said, but it would be about half of what it was under the committee amendment.
The amendment failed on a vote of 8-34.
Lincoln Sen. Patty Pansing Brooks said she would “hesitantly” vote to move LB939 forward to select the file and wait for updated budget projections. She suggested amending the bill in the second round of debate to increase the state working income tax credit, which would benefit low-income Nebraska workers.
After eight hours of debate on the general record over several days, Linehan tabled a motion to invoke closure, which ends debate and forces a vote on the bill and all pending amendments. The motion passed by 41 votes to 1. Thirty-three votes were required.
Senators then voted 40 to 1 to advance LB939 to select the file.