Legislative Report Week 3:
The Chamber will be hosting a morning “Legislative Report” with Senator John Lowe on February 18th at 8 am.
Wednesday, January 23, was the Legislature’s final day for bill introduction in the 2019 session. This year, 739 legislative bills – in addition to several resolutions and constitutional amendments – will be considered. This compares to 667 bills introduced in 2017, the Unicameral’s most recent 90-day “long session.” In addition to wrapping up new bill introductions, senators this week debated the session’s rules, including the minimum numbers of hours permitted for filibusters. As was the practice in the previous two sessions, bills this session will be allotted six hours for first-round debate, three hours for second, and 90 minutes for final reading. Committee hearings on new legislation started this week. Hearings typically begin at 1:30 p.m. (CT) each legislative day and will continue through March 28. State Chamber members who are unable to attend committee hearings on bills of interest may view the hearings live at http://netnebraska.org/basic-page/television/live-demand-state-government
Chamber Opposes Bill To Raise Nebraska’s Top Income Tax Rate
On Wednesday, January 23, the Revenue Committee received testimony on Omaha Senator Tony Vargas’ LB50, a bill that would impose a 7.84% income tax rate on individuals and passthrough businesses earning $100,000 or more. In addition, the proposal would establish a “millionaires’ tax” similar to others tried in a small handful of states. Over the next five years, the bill would raise income taxes on Nebraskans by approximately $500 million. Specifically, LB50 would do the following: Expand Nebraska’s third individual income tax bracket, which imposes a rate of 5.01%, currently for income between roughly $19,000 and $30,500. Start the fourth bracket (6.84%) at a higher income level. Currently, the 6.84% marginal rate is imposed on earnings just over $30,000. 19 Establish a new, fifth bracket with a rate of 7.84% on married couples earning $200,000 or more; on heads of household earning $150,000 or more; and on all other filers earning $100,000 or more. Add an 8.84% marginal rate for income in excess of $1 million, and a 9.84% rate for income in excess of $2 million – which would be a 44% increase over the state’s current top marginal rate. At the hearing, supporters of higher income taxes, such as the OpenSky Institute, cited public surveys showing support for such tax hikes on higher earners, saying LB50 would address wealth inequality and provide more state revenue. Critics said the bill would prompt professionals and businesses to leave for lower tax states, especially in an era of online commerce and worker mobility. Nebraska’s current personal income tax rate of 6.84%, imposed on single filers making just over $30,000, is already the 16 th highest rate in the U.S. The 9.84% rate under LB50 would be the fourth highest income tax rate in the nation after California’s 13.3%, Oregon’s 9.9% and Minnesota’s 9.85%. Other states that have enacted a millionaires’ tax have experienced an exodus of high-income earners. For example, Maryland instituted a high-earner tax in 2007 and 31,000 high-earner residents left the state costing Maryland $1.7 billion in lost revenue, according to reports. Ron Sedlacek, vice president and general counsel for the Nebraska Chamber, testified in opposition to LB50, telling the Revenue Committee that Nebraska already has an uncompetitive tax system and that the bill would worsen Nebraska’s high-tax status. The bill would especially harm small- and mid-sized businesses structured as pass-throughs paying individual income tax rates. More than 90% of Nebraska businesses are organized as pass-through entities. Sedlacek noted that the bill would also negatively affect the state’s effort to attract and retain professionals, entrepreneurs and highly skilled workers. The committee took no immediate action on the bill.
Bills Would Address Incentives Revamp, Tax Reform, Manufacturers’ Tax Liability
This week, three important bills were introduced in the Legislature to address key priorities of the business community. These bills were crafted with the input of the Nebraska Chamber of Commerce and Industry. As the 2019 legislative session progresses, State Chamber staff will be tracking these measures closely and working with lawmakers to ensure that the bills’ provisions adequately serve the needs of Chamber members and Nebraska’s business community. The following are summaries of all three proposals:
Modernized Business Incentives: LB720 by Seward Senator Mark Kolterman, a member of the taxwriting Revenue Committee, is the ImagiNE Nebraska Act, which would revise and improve Nebraska’s business incentives. Its aim would be to attract more well-paying jobs and investment from businesses already in Nebraska, as well as out-of-state companies. The bill would replace the Nebraska Advantage Act, which is set to expire at the end of next year. LB720 would modernize Nebraska’s incentives to keep the state competitive in the national and international battle for jobs and talent. According to supporters, LB720 would: 20 encourage better investments, better jobs, more robust reporting and more overall transparency. accelerate the distribution of incentives by simplifying the application process. increase the “net present value” of tax credits, helping Nebraska to win more projects and career opportunities for residents. allow the state to build stronger relationships with businesses to encourage greater levels of investment. LB720 is cosponsored by 22 senators, including Senators Joni Albrecht, John Arch, Suzanne Geist, Steve Halloran, Mike Hilgers, Robert Hilkemann, Megan Hunt, Rick Kolowski, Andrew La Grone, Steve Lathrop, Brett Lindstrom, John Lowe, Mike McDonnell, Adam Morfeld, Patty Pansing Brooks, Dan Quick, Jim Scheer, Julie Slama, John Stinner, Matt Williams and Anna Wishart.
Income & Property Tax Relief: LB615 by Lincoln Senator Mike Hilgers provides a framework to provide guaranteed, fiscally responsible income tax and property tax relief on an annual basis. The bill prioritizes state fiscal responsibility while setting the stage for long-term tax reform. LB615 proposes a minimum balance of $500 million for the state’s Cash Reserve Fund at the end of each fiscal year. Once a strong cash reserve position is established and maintained, the bill would permit 1-to-1 tax relief for state income taxpayers and local property taxpayers. Income tax relief would be delivered via rate reductions, while property tax relief would be delivered through the property tax credit fund. LB615 would gradually reduce the top rates of both Nebraska’s individual income tax and corporate income tax, eventually taking both to 5.99%. Currently, Nebraska’s maximum corporate tax rate (7.81%) and individual income tax rate (6.84%) are both the 16th highest marginal rates in the U.S. – and both rates take effect at relatively low thresholds of income, hurting Nebraska’s competitiveness.
Section 199 for Manufacturers, Construction & Other Producers: LB664 by Henderson Senator Curt Friesen, also a member of the Revenue Committee, would ensure that Nebraska tax law maintains competitive provisions for manufacturers and other producers. The bill is needed due to changes made in the federal tax code by the Tax Cuts and Jobs Act, which repealed Section 199 and the domestic production activities deduction (DPAD). LB664 would restore Nebraska’s favorable tax treatment of income derived from manufacturing, mining, construction and certain other production businesses. The previous deduction in state law equaled 9% of qualified production income subject to certain limitations. Moreover, the deduction was an above-the-line deduction included in the computation of adjusted gross income. For Nebraska state income tax purposes, the state calculations of taxable income generally begins with federal adjusted gross income, so the portion of the Section 199 DPAD related to Nebraskabased production income potentially also provided a state income tax benefit. LB664 would amend Nebraska’s tax statutes to put manufacturing and other production businesses in the same relative tax position as they were prior to enactment of the federal Tax Cuts and Jobs Act. Last year, the Legislature passed similar legislation (LB1090) to correct these types of situations for individual taxpayers.
The Nebraska Chamber's Annual Meeting and Legislative Caucus:
The annual event will be held Thursday, February 7, 2019, at the Cornhusker Marriott Hotel in Lincoln. This is one of Nebraska's most recognized business events of the year.
Those attending will have an opportunity to hear from key state lawmakers and policy experts, as well as attend briefings on issues of concern to the business community. Afternoon discussion panels will include the traditional Legislative Leaders panel.
The following are the key 2019 dates for Nebraska lawmakers this session:
● January 9-23 - Introduction of new bills.
● January 15 - Governor's State of the State Address (10 a.m. CT).
● January 15 - Deadline for governor to submit budget plan.
● January 22 - Afternoon hearings begin on new bills (1:30 p.m. CT).
● January 23 - Last day of bill introduction.
● March 14 - Deadline for speaker priority bill requests.
● March 19 - Deadline for committee & senator priority bill designations.
● March 20 - Speaker priority bills announced.
● March 28 - Deadline to complete bill hearings.
● April 2 - Full-day floor debate begins.
● May 2 - Budget bills must be on General File.
● May 22 - Budget bills must be passed.
● June 6 - Sine die adjournment.