Nebraska Legislators Approve Inflation Indexing But Drop Major Tax Overhaul

March 12, 2014

Nebraska legislators are on track to approve a bill to inflation-adjust individual income tax brackets each year, a positive change that ends "bracket creep" 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 taxes 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.

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