Tax cut plan helps poor working parents most
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By NANCY HICKS / Lincoln Journal Star
The Legislature’s proposed income tax cut package would give most middle income Nebraskans $20 or less in tax savings a year — about enough extra money to buy the family a pizza and soda.
But Nebraskans with very high incomes or very low incomes would see much bigger tax breaks — enough to get a brake job on the car, enough to spend the weekend in Kansas City or buy a fancy new computer for the kid.
The income tax portion of the tax bill (LB968) would affect practically every Nebraska income taxpayer, said Lincoln Sen. David Landis, chairman of the Legislature’s Revenue Committee.
“For the broad middle class, it is an improvement in where the brackets lie. The gains will be modest but widespread.”
“For the higher end, there are special short-term surcharges that we put on a number of years ago. And we had forgotten that they were there until now,” Landis said. “For the low-income, the earned income tax credit is aimed at those people who are working but who are still quite poor. It is meant to help people transition away from public assistance, and it will affect single mothers more than any other group of low-income Nebraskans.”
The three-prong income tax cuts are part of a broad tax-cut package that also would reduce agriculture-land property values, eliminate a sales tax on home remodeling and reduce property taxes for some low-income seniors and adults with disabilities.
Senators will be debating the package, which has Gov. Dave Heineman’s blessing, during the next few weeks.
The proposed income tax changes are projected to reduce total state income taxes by around $48 million a year and offer tax cuts to almost everyone.
About half of Nebraska’s 851,500 taxpayers would be affected by the change in tax brackets — increasing tax brackets so lower tax rates apply to more dollars. But the proposed savings to individual taxpayers and families is small: $20 or less for most people and up to $71, at the most, for families with incomes of at least $50,000.
Low-income Nebraskans likely would be helped most by the tax plan, which would extend the federal earned income tax credit to state income taxes. About 113,000 Nebraska families are projected to benefit from the state credit, which would be 8 percent of the federal credit. That federal credit can be as high as $4,400, providing a $352 state credit.
Even the average state credit, expected to be around $160, is a bonus for families earning around $525 a week.
“It’s a huge deal for low-income people,” said Jennifer Carter, with the Nebraska Appleseed Center for Law in the Public Interest.
“If it’s been a rough winter and you owe the utility company; you may be able to pay it off. Or maybe you can make car repairs so you don’t have to worry about how to get back and forth to work,” she said.
“This is the best anti-poverty, best pro-family program,” said Rick Carter, executive director of the Lincoln/Lancaster County Human Services Federation. “The majority goes to pay off bills. It’s money that goes back into the local economy.”
Nebraskans whose income taxes are highest would also see the most dollar savings under this plan, which would reinstate the personal exemption credit and itemized and standard deductions for high-income taxpayers.
These taxpayers pay the bulk of state income tax revenue. Taxpayers with adjusted gross income of more than $88,379 paid 55 percent of the state’s total tax liability in 2004, according to Department of Revenue records.
John Cederberg, a Lincoln certified public accountant interested in tax policy, believes the tax cuts proposed for higher income Nebraskans are good tax policy — helping to keep and attract business owners, the engine of Nebraska job growth.
Nebraska’s individual income tax rates for high-income taxpayers are substantially higher than neighboring states of Iowa, Missouri, Kansas and Colorado. Even with the proposed changes, Nebraska is still highest, said Cederberg.
Tax reductions for these folks help grow what Cederberg calls “the leadership class.”
“Those are the people who are creating the jobs. It’s always really neat to get a Union Pacific headquarters, but it doesn’t happen in a state our size every year. So the principal growth of jobs in this state are the small businesses.”
“These are the people that Missouri and the front range of Colorado are competing for,” he said.
Reach Nancy Hicks at 473-7250 or nhicks@journalstar.com.
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