Potentially far-reaching income tax change among bills passed

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March 27, 2014 - 5:09pm

The Nebraska Legislature passed bills Thursday dealing with everything from state parks to industrial hemp. The bills passed also include tax measures, at least one of which could have major long-term consequences.

LB987, passed 44-0, ties Nebraska’s state income tax brackets to inflation. Currently, if your income goes up at the same rate as inflation, you could pay a greater percentage of your income in taxes, even though you had no increase in real purchasing power. Under the bill, you would continue to pay the same percentage in taxes.

Sen. Galen Hadley of Kearney, chairman of the Revenue Committee which sponsored the bill, said "That’s a huge deal…In the past, the Legislature’s had kind of a quasi-tax increase, without having to call it a tax increase."

Hadley estimates the change will save taxpayers $10 million the first year. But as time goes on and inflation accumulates, so will the tax savings, which he estimates at $100 million a year 10 years from now. Others say that may be a conservative estimate. At any rate, the historical growth of state revenues at about five and a half percent a year may go down.

The bill also eases taxes on Social Security and military retirement. Another bill would exempt ag machinery repair and replacement parts from sales tax. And homestead exemption property tax breaks for older and disabled Nebraskans were expanded.

In the past, Hadley has argued the Revenue Committee’s job is to set taxes at a level to fund the spending decisions of the Appropriations Committee and the Legislature as a whole. Thursday, he was asked what these tax changes mean for future spending decisions. "Everything we did will affect the amount of money Nebraska has to spend. That’s just going to happen," he said. "We also hope the economy does grow, that will give us funds for programs. But we’re not going to do it completely on the back of taxpayers through inflation in their tax brackets or taxing the lower income social security, or things like that."

Among dozens of other bills passed Thursday was a measure dedicating tax revenues from sales or leases of boats, personal watercraft all terrain and utility vehicles to help catch up with deferred maintenance at state parks.

Another bill establishes a system of public guardians to handle the legal and financial affairs of people unable to take care of those things themselves.

Another bill expanded behavioral and mental health programs. And a bill allowing university cultivation of industrial hemp for research was also approved.

The governor has five days, not counting Sunday, to sign, veto, or let the bills become law without his signature.

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