The Legislature on Wednesday gave final approval to a bill designed to protect Nebraskans from an estimated $226 million in state income tax increases that could result from recent federal tax reform.
Passage of the legislation (LB1090) was accompanied by some words of caution and concern that the bill might not turn out to be revenue-neutral and could result in a reduction in state revenue at a time when the state already is experiencing a revenue crunch.
The bill, introduced by Sen. Jim Smith of Papillion, was enacted on a 44-0 vote.
Sen. Bob Krist of Omaha raised a warning flag before the final vote, noting that unanticipated changes in individual taxpayer behavior could lead to "additional budget problems" for the state, compounding its current revenue crunch.
Renee Fry, executive director of OpenSky Policy Institute, expressed the same concerns.
"While it is important to ensure low- and middle-income Nebraskans don't experience state tax increases because of the federal tax cuts, LB1090 leaves no margin of error should the federal cuts have a negative impact on state revenues," Fry said.
"We don't know how taxpayers will react" in making individual decisions resulting from the federal tax reform, she said.
"If state revenues are negatively impacted by the federal tax cuts, lawmakers will be faced with having to either increase other revenue sources, such as sales taxes or fees, or make further cuts to key services like education and health care."
The Platte Institute applauded enactment of the bill, noting that more of a Nebraska taxpayer's income would be subject to the state income tax due in 2019 if the law was not changed.
LB1090 creates a new personal exemption in Nebraska and increases Nebraska's standard deduction in an effort to prevent state tax hikes resulting from the federal tax changes.
Smith, chairman of the Legislature's Revenue Committee, has said the purpose of the bill is to "keep Nebraska citizens and businesses whole."
Meanwhile, Platte Institute CEO Jim Vokal issued a challenge for all sides in the state's ongoing tax reform debate to "start fresh and aim for a new tax code and a new approach to education funding."
"Let's put everything on the table: incentives, exemptions and the taxing authority for local political subdivisions," he said.
"If there is any positive takeaway from this session on taxes, it's that dissatisfaction with the system we have is growing among the (legislative) body, even if it could always be worse."