A bill designed to prevent the new U.S. tax law from triggering an automatic tax increase in Nebraska won initial approval from state lawmakers on Thursday, despite concerns that it might create future budget problems.
The bill seeks to neutralize most of the effects of the law approved by congressional Republicans and President Donald Trump. Lawmakers advanced the bill, 38-0, through the first of three required votes.
Nebraska's tax system is changing because lawmakers have connected many parts of it to the federal tax code, leading to automatic shifts when federal tax laws change. The federal law would generate an additional $220 million for the state unless lawmakers intervene, according to the state Department of Revenue.
Specifically, the bill would restore Nebraska's $134 personal exemption credit that's tied to a now-obsolete provision in the federal tax code. If lawmakers don't act, a family of four would have to pay an additional $536 in state taxes this year. It also would allow Nebraska's standard deduction and personal exemption credit to grow slightly faster than the inflation rate used by the federal government.
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Despite the effort to preserve the status quo, lawmakers acknowledged that some residents and businesses may see state tax increases because of the federal law.
The bill "is an attempt to hold as many Nebraskans harmless as possible and prevent large tax increases due to what happened at the federal level," said Sen. Jim Smith of Papillion, who sponsored the proposal at Gov. Pete Ricketts' request. "If you are expecting (the bill) to be perfect, to offset every provision of the federal law, you're going to be disappointed."
One lawmaker voiced frustration that the federal action was forcing states to either react or take blame for a state-level tax increase. Sen. Burke Harr of Omaha criticized Nebraska's congressional delegation for supporting the tax law.
"They expect us to come in here and clean up their mess," Harr said. "I'm sick of it. Tell the truth. Tell what this bill did on the federal level. You stuck it to the states."
Sen. Kate Bolz of Lincoln, a member of the budget-crafting Appropriations Committee, questioned whether the bill could create future financial problems if the department's estimates are off, and said lawmakers should re-examine the issue next year. It's still not clear how taxpayers might change their behavior in response to the federal law, she said.
Bolz said it's important to prevent tax increases, particularly on low-income residents, "but I also think it's our responsibility to make sure the tax policy changes we're making don't have inappropriate effects on our long-term ability to budget."
Sen. Bob Krist of Omaha, a Democratic candidate for governor, proposed a tweak to the bill that would only have prevented wealthier taxpayers from claiming a personal exemption.
Senators rejected the amendment, but if it had passed, the state would have received an additional $66 million. It also would have steered money into the property tax credit fund, which lowers what property owners have to pay in taxes.
"I want to make sure we do not create a bigger hole in our general fund by overreacting," Krist said.