Pillen’s tax cut ideas are gaining support from business groups and drawing criticism from community colleges.

LINCOLN. The main sponsor of Gov. Jim Pillan’s proposal to cut the state income tax on Thursday dispelled doubts that such a $1.5 billion cut in state revenues is acceptable and will not hurt public services.

State Senator Lou Ann Linehan of Elkhorn said the state has more than $2 billion in surplus state tax funds and should return it to Nebraska taxpayers in the form of lower tax rates.

“It is critical that we improve our tax climate to be more favorable to current and future Nebraska residents,” Linehan said.

In the meantime, Nebraska community college representatives en masse opposed Pillan’s proposal to shift funding for such colleges from local property taxes to state sales and income taxes.

Such a shift would remove about $300 million a year from property tax bills, providing “immediate” relief, according to the governor and others. But a wave of opponents has expressed concern that public funding commitments will eventually be eroded, hurting the regional colleges’ efforts to produce skilled workers and serve the underprivileged.

“We are part of the solution,” said Fred Wee, chairman of the board of Omaha Metro Community College.

Thursday was a big day for the new governor’s tax proposals, as hearings were held all day on his income tax and community college proposals.

The cuts will improve the state’s rating

The income tax cut received support from government business and conservative groups, but raised concerns among others about whether public funds could support them in the future.

Proponents said it would place Nebraska among the lowest-ranking 15 states in the country — right now, the Tax Foundation ranks the state 35th for its business climate — but opponents said there are better ways to return excess funds to taxpayers.

Under Legislative Bill 754, Nebraska’s top personal and corporate income tax rates will be phased out to 3.99% by tax year 2027.

The second pair of bills, LB 804 and 806, will accelerate last year’s phased income tax cuts, allowing the rate to be reduced to 5.84% in 2024 rather than 2027. Presumably, these two bills will be replaced by LB 754, if it’s gone.

Pillen said that as several other states consider tax cuts, there is a “critical need” to remain competitive. He said all of Nebraska’s neighboring states have lower top income tax rates, citing Iowa’s recent adoption of a 3.99% flat tax rate.

“We all agree that Iowa won’t beat us, not a chance,” said the governor, hog producer, veterinarian and former football player from Nebraska.

In response to Linehan’s questions, Lee Will, Pillen’s director of budget, said the state has about $2 billion of surplus funds to spend on top of a projected $1.6 billion cash reserve that could be called upon in the event of a recession and fall. in tax payments.

Michael Lucci of the free-market Platte Institute said two dozen states have cut income taxes in the past two years, including five that have introduced flat taxes.

“Time is very good”

“The timing is very good,” Lucci said, given the state’s large cash surplus and cuts coming from other states.

But Rebecca Firestone of the OpenSky Policy Institute in Lincoln joined Lincoln Senator George Dungan in raising concerns about the long-term sustainability of the tax cut. They rejected the idea that tax cuts would force more people and businesses to move or stay in the state.

For example, according to Firestone, ConAgra moved its headquarters from Omaha to Illinois despite Illinois being a state with higher taxes.

She said three-quarters of the income tax cut would benefit Nebraska’s top 20%, whose families earn more than $138,000.

Firestone called the proposal “poorly targeted” and said there were better ways to recoup excess tax revenue, such as direct rebates or targeted tax credits, such as for childcare.

Few people move

Dungan said that work and family encourage most people to move, not taxes, and that only a “small fraction” of people, 1.5-2% of the population, actually move each year.

Lucci of the Platte Institute said taxes are one of many factors driving relocation, but low tax rates allow the state to create more jobs. He also noted that people move to get a job.

Linehan also backed the proposal, saying $138,000 was more than a middle-class family’s income and that £754 was taking nothing from the public fund for a rainy day. According to her, it is, without a doubt, sustainable.

LB 783, introduced by Glenville Senator Dave Moorman on behalf of the governor, would shift Nebraska community college funding from property taxes to state sales and income taxes as the University of Nebraska system is funded.

More recently, the state moved in that direction by approving a state income tax credit for a portion of property taxes paid to support community colleges.

Under LB 783, more than $300 million will be exempted from property tax registers by 2027, providing a tax credit of about 5.5%. Public funding for community colleges will increase by 3.5% per year under the bill, which proponents say typically outpaces inflation.

A parade of community college administrators, board members and students protested against the law, expressing doubt that the state would meet its funding obligations.

Representatives of colleges based in Norfolk and North Platte also said that their rural schools will lose in the fight for funding with the University of Nebraska and urban community colleges.

The Revenue Committee was told that the State Economic Developers Association opposed the idea because community colleges are key partners in preparing skilled workers for the 21st century. The Committee was advised that local councils could better respond to these needs.

Local governance is better

“I am concerned about removing local control and replacing local funding with public funding,” said Nicole Sedlacek, board member of Northeastern Community College in Norfolk. “In today’s environment, we need programs that can respond at the speed of business and industry.”

Neil Stenberg, board member of Southeastern Lincoln Community College, said LB 783 as written would cause the college to default on $50 million in bonds recently issued to build new classrooms and learning centers. The capital improvement tax that community colleges use on building projects will be eliminated under the bill, he said.

“This will put an end to our major upgrades,” Stenberg said, which will include a new technology center that businesses are “begging” the college to build.

The Revenue Committee took no action on the bills it heard Thursday, but Moorman, a sponsor of the community college proposal, said an amendment was being developed to address the capital building problem.

He added that he would consider allowing community colleges to retain their property tax powers but increase state aid to eliminate the need to tax property – something the Platt Institute has proposed as a solution.

Moorman said the bill’s intent is not to cut funding for community colleges.

College advocates, though, said they expect public funding to dwindle, especially if the state hits an economic downturn. According to them, this will lead to an increase in tuition fees, which is contrary to the mission of keeping education accessible to the poor.

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