Tax cuts advanced despite budget concerns

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March 12, 2012 - 7:00pm

The Legislature moved forward on cutting taxes and debating a budget Tuesday, despite concerns that the two conflict with each other.

The budget proposed by the Appropriations Committee would add about $40 million to the two-year, $7 billion budget passed last year. The increases include funds for low income child care subsidies, child welfare, and developmental disability aid. They're partially offset by some lower than expected costs, including for homestead exemptions and school aid.

Among the proposed increases is paying doctors, hospitals and nursing homes that serve Medicaid patients 1.5 percent more, partially making up for a 2.5 percent cut last year. Sen. John Wightman of Lexington said it's important to keep those rates up. "If we don't keep those rates, not only will we lose providers, but also we are going to see people who have more money, that are paying for their own care or those that are covered by insurance, those rates are going to have to go up to offset the cost that these providers see with respect to Medicaid patients," he said.

Meanwhile, the Revenue Committee voted 5-3 to send a scaled-down version of Gov. Dave Heineman's tax cut proposal to the full Legislature. The proposal would phase in the governor's proposed reductions over the next three years. Lower and middle income taxpayers would see their taxes lowered by $8.8 million next year. The uppoer income bracket would be cut by $44 million in 2014. And all brackets would see further cuts in 2015, with totals estimated by $90 to $95 million.

After a meeting over the lunch hour, Revenue Committee Chairwoman Sen. Abbie Cornett said committee members wanted to hear how the governor would make the budget balance. An hour and a half later, she joined the committee majority in voting to advance the plan. Cornett said the vote was needed to keep the tax cut alive. "The governor's office wanted an up-down vote this afternoon to show whether the committee had the resolve to look at tax relief. And we were able to get it out," she said, adding that the proposal is still subject to change.

Committee member Sen. LeRoy Louden was one of those voting against the proposal. "If we start doing this, then who's going to suffer? It's either going to be schools or highways or somebody else that is going to suffer and will have to be short on funds," he predicted.

While next year's proposed tax cut is relatively small, the cut in the following two years would add roughly $140 million to an already-projected $460 million shortfall. That upset a number of legislators, including Omaha Sen. Steve Lathrop. "We are the Legislature. Each one of you is down here to exercise your best judgement, not to follow, certainly not to follow the executive branch down a process that will leave us with a $600 million hole," he told his colleagues.

But legislative speaker Sen. Mike Flood said the Legislature has routinely overcome projected shortfalls for future years. "If people are laying the lives down in front of the train regarding the out-years,' why aren't they equally incensed about the $80 million coming out of the cash reserve for these university projects?" Flood asked. That was a reference to one-time capital construction costs, which Flood supports, for the University of Nebraska and other postsecondary institutions.

The projected shortfall contains assumptions including a roughly 30 percent increase in school aid, to make up for temporary reductions in recent years. That accounts for around half of the projected shortfall, and is widely expected to be cut. Lawmakers adjourned for the day without reaching a first-round vote on the budget.

On another matter, the Natural Resources Committee voted 6-2 to advance a bill extending the Nebraska Department of Environmental Quality's authority to review a new route for the proposed Keystone XL oil pipeline. Opponents call the legislation unnecessary.

 

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