A measure that would generate $82 million in Nebraska state tax revenue by eliminating a deduction for high-income earners hit a snag Thursday in the Legislature after business groups objected to the idea.
The proposal debated by lawmakers would restore some of the estimated $250 million the state is expected to lose over the next three years as a result of the federal coronavirus tax cuts for businesses.
“This is a huge tax decision, a huge revenue decision that we should debate and vote on,” said Sen. Sue Crawford, of Bellevue, who sponsored the measure.
Some lawmakers cast the measure as a tax increase on businesses that are still struggling from the coronavirus pandemic and said their local and state chambers of commerce opposed it. After three hours of debate, senators left the issue unresolved and adjourned for a four-day weekend.
“This has a potentially significant impact on small businesses,” said Sen. Mike Hilgers of Lincoln.
Nebraska's tax system is coupled with the federal tax code in a way that triggers automatic changes in the state anytime federal officials approve new tax policies.
Crawford's proposal would preserve a $500,000 income cap on a Nebraska state income tax deduction that was eliminated with the passage of the federal Coronavirus Aid, Relief and Economic Security Act.
Under previous state law, taxpayers who earned more than $500,000 a year were prohibited from deducting business losses as a tax write-off. The CARES Act eliminated the cap, allowing business owners to claim losses on their state income taxes.
Crawford said business owners who make more than $500,000 will still get federal tax benefits under the CARES Act, and she argued that wealthier taxpayers have more resources to exploit the benefit.
“Anybody with a great accountant can find business losses, despite the fact that your business is chugging along just fine,” she said.
But Sen. Lou Ann Linehan, of Elkhorn, said the businesses that benefit from the Nebraska tax deduction are generally the ones that offer high-paying jobs. Many of those were hit hard by the pandemic, she said.
“I don't know how we can argue about letting people keep their doors open and keep people employed,” she said.
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