Straight Talk from Steve: LB 873
April 20, 2022
Ever since I became a State Senator six years ago my number one priority has been to give Nebraskans meaningful and significant tax relief, especially property tax relief. The second session of the 107th Legislature is scheduled to end sine die on Wednesday, April 20, 2022. Therefore, today I would like to assess the status of tax relief efforts in Nebraska this year.
The Nebraska State Legislature missed its best opportunity for meaningful and significant tax relief by failing to advance LR264CA, my constitutional resolution for the consumption tax. The consumption tax would have eliminated both individual and corporate income taxes, state sales tax, real estate taxes, and inheritance taxes by replacing all of these taxes with an 8.97 percent consumption tax. The beauty of the consumption tax is that it would have put the tax payer in control of how much taxes he or she pays to the State. Instead, state lawmakers decided to keep control of your taxes centralized in Lincoln.
What the Unicameral Legislature decided to pass this year was the Revenue Committee’s own tax relief plan, LB 873, which was crafted mainly by the Revenue Committee’s chair, Sen. Lou Ann Linehan of Elkhorn. This bill protects the 25 percent income tax credit taxpayers already receive on property taxes paid to schools, creates a new rebate on property taxes paid to community colleges, phases out taxes on Social Security income, phases in a reduction of the highest individual income tax rate from 6.84 percent to 5.84 percent by 2027, and phases in a reduction of the corporate income tax rate from 7.5 percent to 5.84 percent by 2027. Because LB 873 provides tax relief for Nebraskans, I voted in favor of this bill, but that does not mean that it was a good bill.
LB 873 leaves the State in charge of your taxes. As you can see, LB 873 preserves what is commonly referred to as Nebraska’s three-legged stool. The three-legged stool is designed to protect the State’s coffers by placing three layers of taxation over Nebraska’s citizens, namely property taxes, income taxes, and state sales taxes. The three-legged stool creates a complicated tax system whereby Nebraskans are left in the dark in regards to how much money they actually pay to the State in taxes every year. As the tax reform expert, Dan Pilla, says, the first rule of taxation is simplicity whereby citizens have the “right to know what the tax laws require, and compliance should be easy and inexpensive.”
LB 873 does not go far enough. Although LB 873 offers Nebraskans various kinds of tax relief, it fails to address the root causes of escalating taxes in our state. For example, offering a 25 percent income tax credit on property taxes paid to schools does nothing to limit the ability of county assessors from raising the value of your property or home in the future.
LB 873 ignores the fact that Nebraskans need immediate tax relief. According to the Farm Bureau, Nebraska ranks second only to Wisconsin in the number of farm bankruptcies. Many farmers and ranchers cannot afford to wait until 2027 in order to reap the benefits of LB 873. Because LB 873 phases in individual and corporate income tax relief slowly over time, taxes will increase faster than the relief offered by the bill.
The bottom line is that LB 873 ignores the fact that Nebraska has a broken tax system which needs to be replaced with one that works for the taxpayer as well as one which works for the State.