Tax-cut converts help package pass 1st test
Wednesday, March 21, 2012
By Paul Hammel
LINCOLN — A new, less ambitious tax-cut package won over enough converts in the Nebraska Legislature on Tuesday to push it to surprisingly easy, first-round approval.
The package, a compromise worked out earlier in the day by state legislators and Gov. Dave Heineman, was advanced on a 36-6 vote.
The tax cuts would cost about $56 million annually when fully implemented. That is less than half as much as the governor's original plan, which would have cost $130 million a year. The compromise also dropped a proposed decrease in corporate income taxes and the elimination of an inheritance tax paid to counties.
Supporters said the slimmed-down proposal was affordable but still would return money to taxpayers.
“This is a down payment on tax relief,” said State Sen. Abbie Cornett of Bellevue, who helped negotiate the compromise with Heineman.
Under the new plan, the tax cut would amount to $67 a year for a married couple with $50,000 in adjusted gross income. It would be a $145 tax break for couples with $100,000 incomes or more.
Several key lawmakers expressed concerns about whether the time was right to cut taxes, given the fragile state of the economic recovery.
They said that if the state's economy doesn't improve enough, lawmakers will be looking at cutting services for the elderly and poor, reducing spending on new highways and chopping funding for K-12 and higher education to maintain the tax breaks.
“This legislation, no matter how far it's whittled down, is unaffordable,” said Lincoln Sen. Danielle Conrad, who sits on the Appropriations Committee.
She said the cost to the state in lost tax revenue would increase the projected budget gap in the next two-year budget cycle from $461 million to $556 million.
Three key senators — Greg Adams, chairman of the Education Committee; Kathy Campbell, chair of the Health and Human Services Committee; and Steve Lathrop, chairman of the Business and Labor Committee — also expressed concerns, even though they said the less-ambitious tax cut package was an improvement.
Some opponents said the tax breaks were so small it wasn't worth the trouble. Other senators suggested that tax cuts should be put off for a year to see whether state tax revenues had rebounded adequately.
“Something's gnawing at me, and it's making me uncomfortable,” said Lathrop, of Omaha. “This is not how I'd manage my law firm or my personal finances.”
Columbus Sen. Paul Schumacher said that lawmakers would never raise taxes so that approving a tax cut means state services would face cuts if the economy goes sour.
Heineman, a conservative Republican, made tax reduction for low- and middle-income Nebraskans his top priority for 2012, but his initial proposal drew criticism as being too ambitious and unaffordable.
He ultimately acknowledged he didn't have the votes to pass it, which resulted in a compromise version of Legislative Bill 970 that was finally worked out Tuesday morning, following negotiations that went late Monday night.
Two Democratic lawmakers from Omaha, Sens. Heath Mello and Jeremy Nordquist, worked on the compromise and voiced support for it during floor debate Tuesday. They told fellow senators they didn't think it would jeopardize funding for other state priorities, such as K-12 education and social services.
Nordquist said the proposal is also more focused on the people who really deserve a tax break: low- and middle-income families.
He passed out data showing that the biggest income tax reduction, 5.6 percent, would go to married couples with adjusted gross incomes of $60,000. The smallest breaks, less than 1 percent, would go to couples earning $250,000 or more.
“I believe this is good tax policy,” added Mello.
Opponents of LB 970 said passing the tax-cut bill now would, in effect, be forcing future budget cuts. They supported waiting on tax cuts to make sure the state can finance other state priorities.
A coalition of groups that includes the Nebraska State Education Association stated the governor was ignoring “common-sense budgeting” and doing what he has previously said he wouldn't do by putting the budget “out of balance.”
“The governor's tax plan relies on loosey-goosey budget assumptions and dumps the huge deficit into the laps of the next governor and future Legislatures, as well as local governments that will be forced to raise property taxes,” the coalition said.
A moderate tax policy group, the Open Sky Policy Institute, also criticized the package, stating that tax cuts are typically granted in times of state budget surpluses, not looming deficits.
But after about three hours of debate, even some of the senators who expressed concerns, including Adams, Campbell and Lathrop, ended up voting to advance the bill.
Members of the Appropriations Committee have held firm that the state could afford only about $50 million a year in reduced income tax revenue. Heineman, who had insisted that bigger tax cuts could be accomplished if state lawmakers didn't increase spending, reluctantly agreed in the end.
Heineman has said that the projected budget gap of up to $500 million is based on unreasonable projections, including that state aid to education will be increased by 22 percent in the next, two-year budget.
The Legislature's Fiscal Office distributed a list of “potential actions” to reduce the budget gap, including limiting state aid growth to 5 percent, which would cut the gap in half.