Legislation designed to neutralize the fiscal impact of recently enacted federal tax reform on individual state taxpayers gained 38-0 first-round approval Thursday after a contentious debate that raised the question of whether the bill might result in a reduction in state revenue.
The proposal (LB1090) would make changes in state tax law in an effort to prevent Nebraskans from paying an estimated $227 million in additional state income taxes as a result of the federal action, Sen. Jim Smith of Papillion said.
The bill restores Nebraska's personal-exemption tax credit that was effectively repealed by the federal tax cut measure and makes a number of other changes.
Sen. Kate Bolz of Lincoln questioned whether the adjustments in state tax policy might result in a negative fiscal impact for state government that would imperil the state's long-term budget sustainability.
Sen. Bob Krist of Omaha raised some of the same concerns as he offered an amendment that he said would secure the tax adjustments that protect low- and middle-income Nebraskans while "making sure we do not create a bigger hole" in the state's budget.
Krist's amendment, which was defeated 24-12, also would have added $20 million to the state's property tax credit fund.
Smith argued that the Krist proposal would have resulted in an effective $66 million tax increase for higher-income Nebraskans who would not be sheltered by the amendment.
With indirect references to Krist's gubernatorial candidacy shadowing Thursday's debate, Krist said it was "not fair and bad form" to turn an effort to shape fair tax policy into a political or personal issue.
Krist is a Democratic candidate and appears headed to a showdown with Republican Gov. Pete Ricketts in November.
The Ricketts administration crafted the tax adjustment bill.
Krist pointed a couple of times to a study conducted by Open Sky Policy Institute in warning that the bill provides no state revenue safeguard.
The tax changes "leave the state no revenue cushion should estimates regarding the state fiscal impact of federal tax cuts not be spot-on," the study warned.
"This could be setting Nebraska up for continued budget problems," the study stated, with state senators eventually "faced with having to either increase other revenue sources such as sales taxes or fees or make cuts to key services like education and health care."
Smith said the bill is needed to "make certain Nebraska families and small businesses are protected" from tax increases, but said there is no way to assure that some individual state taxpayers might still be adversely impacted by the federal law.
"This is an attempt to hold as many Nebraskans harmless as possible," he said, "Tax policy impact is not precise."
Sen. Burke Harr of Omaha said Nebraskans need to understand that Congress and members of Nebraska's congressional delegation "raised your taxes" and they now "expect us to come in here and clean up (their) mess."
"The majority of people who had their taxes raised (by congressional action) make less than $25,000 a year," Harr said.
"We have to cut the tax increase that the Trump administration imposed on the states," he said.
Sen. Ernie Chambers of Omaha said the Legislature is dealing now with "the harm being done" by the federal tax reform law that was enacted by Congress at the end of last year.