Property, income tax dispute threatens Nebraska tax package

By GRANT SCHULTE - Associated Press - Sunday, April 2, 2017

LINCOLN, Neb. (AP) - Despite an effort to unite Nebraska farmers and business owners behind a sweeping tax plan, the groups remain sharply divided over which taxes to cut and some worry the opposing views could make already difficult changes all but impossible.

The package championed by Gov. Pete Ricketts remains in limbo as lawmakers approach the 60th day of this year’s 90-day session. At issue is a dispute between organizations that want to lower income taxes and those that want to reverse surging property taxes on farm and ranchland.

Sen. Jim Smith of Papillion, the chairman of the Revenue Committee, said he’s hopeful the groups could reach a compromise, but he’s “absolutely” concerned the spat could derail the whole package.

“Unfortunately, these special interest groups just can’t help themselves,” Smith said. “They put their stake in the ground and appear to be so rigid that they’re willing to allow everything to fail.”

The governor’s proposal would lower Nebraska’s top income tax bracket in phases, from 6.84 percent to 5.99 percent, in years when state revenue growth exceeds 3.5 percent. It also would cap the yearly growth of statewide aggregate land values when calculating taxes and change the way land is valued so that it more closely reflects a farmer’s potential income.

Ricketts said it’s crucial to keep the measures together because any tax package will need support from at least 33 senators to overcome an expected filibuster. Neither income nor property tax measures are likely to pass if forced to stand alone, he said.

“There’s no doubt this is a challenge,” Ricketts said last week. “It’s a lot of work to be able to find something we can all agree on, but that’s really what the people sent us here for - to work on these difficult challenges and find compromise.”

Farm advocates said the package wouldn’t help much and instead support eliminating sales tax exemptions or a higher state sales tax to offset property taxes. Business groups strongly oppose that proposal, arguing income tax cuts would keep the state competitive and that property taxes are strictly a local issue.

Some senators say lawmakers shouldn’t even consider tax cuts when the state faces longer-term challenges with its prison system, mental health services and an aging population that’s likely to rely on government programs.

Nebraska also faces a projected $288 million revenue shortfall in its upcoming two-year budget. Even though the income tax cuts wouldn’t take effect until 2020 if state revenue recovers, Sen. Paul Schumacher of Columbus said he hasn’t seen any indication the state’s budget situation will improve.

“It’s really difficult to float a boat when you have no water,” Schumacher said.

Lawmakers have focused mostly on property taxes in recent years because of a 2013 legislative study that found Nebraska’s property taxes are higher than national and regional averages.

Senators should focus on “rebalancing” the three revenue streams to place less emphasis on property taxes, said Trent Fellers, a spokesman for Reform Nebraska’s Future, a group aligned with the Nebraska Farm Bureau.

“We think all of the focus needs to be on property taxes,” Fellers said. “That issue has been there for years and hasn’t gone away. People across Nebraska want to see something meaningful happen on property taxes.”

Statewide agricultural property taxes have soared by nearly 164 percent over the last 10 years, according to the Nebraska Department of Revenue. Local governments collected $1.2 billion in property taxes from farm and ranchland last year, up from $455 million in 2006.

Groups pushing for the income tax cut acknowledge the need to address property taxes but said it’s not a state issue because only local governments levy property taxes. Cutting income taxes will require state spending restraint, and using state money to lower property taxes will make major changes harder, said Jamie Karl, a vice president for the Nebraska State Chamber of Commerce and Industry.

“You can’t address local tax spikes by doing tax shifts,” Karl said. “Tax shifts will not affect local property tax rates. That has been tried again and again and again. It just hasn’t worked.”

Karl said cutting individual income tax rates would help businesses because roughly 90 percent file as individuals rather than corporations.

He also pointed to a 1990 vote that raised the state’s sales and income taxes to pay for additional school aid, with the promise of lowering property taxes. The plan initially worked, but by 1992 property taxes had jumped by roughly 10 percent.

Steve Nelson, president of the Nebraska Farm Bureau Federation, said state government influences property taxes through unfunded mandates and restrictions on local governments.

“The state has a huge part in this,” he said.

Nelson said lawmakers still have “ample time” to address property taxes even though they’re almost two-thirds of the way through the session. Nelson said his group doesn’t oppose efforts to address income and property taxes, but argued that property taxes are a more pressing concern.

“If the Legislature fails to deal with it in a meaningful way, it doesn’t mean it will go away,” Nelson said. “That problem will still exist. The need to do something will only grow stronger.”