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Nebraska Legislators Approve Inflation Indexing But Drop Major Tax Overhaul

1 min readBy: Joseph Bishop-Henchman

Nebraska legislators are on track to approve a bill to inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. -adjust individual income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. brackets each year, a positive change that ends "bracket creepBracket creep occurs when inflation pushes taxpayers into higher income tax brackets or reduces the value of credits, deductions, and exemptions. Bracket creep results in an increase in income taxes without an increase in real income. Many tax provisions—both at the federal and state level—are adjusted for inflation. " and will save taxpayers $10 million per year. However, efforts to adopt a more comprehensive tax overhaul appear to have stalled until the 2015 legislative session.

From the Omaha World-Herald:

The sponsor of the bill, State Sen. Burke Harr of Omaha, and a representative of one of the business groups pushing for income tax cuts said the fight was over until next year.[…]

Kearney Sen. Galen Hadley, chairman of the Legislature's Revenue Committee who headed up a tax “modernization” study last year, said lawmakers signaled that they had hit their limit for tax changes this year.[…]

As originally proposed, LB 1097 would have cut state income tax rates for individuals and corporations over three years. But with its cost — an estimated $645 million a year — it was panned during a public hearing as a budget buster that would harm K-12 and higher education.

Even Harr, the sponsor, said the original bill was unaffordable. Tuesday, the senator said he had attempted to find more affordable alternatives but was unsuccessful.

Hadley said the Revenue Committee will probably study income taxes again this summer. Harr said that income and property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es are too high and that Nebraska needs to reduce them to remain competitive.

After meeting with stakeholders across Nebraska, the Platte Institute and the Tax Foundation prepared a review of the state's tax system and outlined many potential reform options. Key among these were getting the individual rate below 6 percent, getting the corporate rate below 6 percent, and inflation-adjusting the brackets. Looks like one out of three for 2014, with a likelihood that the other items will be key on the 2015 legislative agenda.