LINCOLN, Neb. (AP) - Gov. Pete Ricketts’ income and property tax package drew cheers from Nebraska’s business community when he announced it last month, but leading farm groups say it doesn’t do enough to address their concerns about rising property taxes.
Although farm groups support the governor’s proposal to change how agricultural land is valued, they are disappointed the package doesn’t offer more to landowners. Property taxes on agricultural has soared by nearly 164 percent over the last decade, according to the Nebraska Department of Revenue.
Nebraska faces a nearly $900 million projected revenue shortfall largely because commodity prices and farm incomes have fallen sharply even as agricultural property values have continued to rise.
“Our property taxes are going to go up at a time when our incomes have tanked for three years in a row,” said John Hansen, president of the Nebraska Farmers Union. “How much good is an income tax cut when you’re losing money?”
Hansen said many of his members are “beaten down and demoralized” and worried about banks refusing to renew the loans they need to stay in operation. He said he would rather see a blend of income and sales tax increases to offset property taxes, which account for the largest portion of total local and state government revenue.
Ricketts’ property tax proposal would switch from a system that relies on land sale prices to value property to one that focuses on how much income it could potentially produce. If such a system were in place this year, it would have reduced the statewide taxable value of Nebraska’s agricultural land by 2 percent, said Ruth Sorensen, the state’s property tax administrator.
The bill would also impose a 3.5 percent annual cap on statewide valuation increases.
Nebraska Farm Bureau President Steve Nelson said the proposal doesn’t address the core problem of government relying more heavily on property taxes than income or sales taxes. The Farm Bureau has called for eliminating sales tax exemptions or raising the state’s sales tax rate and using the money to lower property taxes.
“We’re out of balance, and we need to rebalance the situation for all property owners,” Nelson said.
Nelson said his group generally supports controlled spending and income tax cuts, but with limited money available, he argued lawmakers should continue to concentrate on property tax reforms.
Sen. Lydia Brasch of Bancroft, who introduced the property tax bill on the governor’s behalf, said the measure is “realistic and achievable” in a tight budget year. Brasch said she understands the farm groups’ concerns, but argued that imposing new taxes to pay for property tax cuts was counterproductive.
“I don’t think you can grow the tax base by taxing people more,” said Brasch, a Farm Bureau member and chairwoman of the Agriculture Committee.
The income tax plan would lower Nebraska’s top income tax rate in eight steps, from 6.84 percent to 5.99 percent, in years when projected state revenue increases by more than 3.5 percent.
The top bracket kicks in at $29,831 for single taxpayers and $59,661 for married couples, but with deductions and credits, many taxpayers would have to earn tens of thousands of dollars more before having to pay the highest rate. People whose taxable income is less would see no savings.
Nebraska’s leading business groups said lawmakers need to focus on the income tax to keep pace with surrounding states with lower rates. Focusing on the top bracket is important because at least 90 percent of the state’s businesses pay individual rather than corporate income taxes, according to the Nebraska Chamber of Commerce and Industry.
Nebraska businesses consistently rank the state’s tax climate as one of their top concerns, second only to workforce development, said Jamie Karl, a state chamber spokesman. The chamber doesn’t support eliminating income taxes entirely, but Karl said Nebraska needs to compete with neighboring states that have lower rates.
“This is as reasonable a plan as can be devised,” Karl said. “If we’ve had any complaints from our members, it’s that it’s not aggressive enough.”
Karl said he understands the need to address property taxes but noted state government can only directly control sales and income tax rates. Local governments such as school boards and county commissions impose property taxes.
“You’ve got to wage the battle where the fight is taking place,” he said.
Kurt Arganbright, an attorney who owns a fast-food restaurant and brewery in Valentine, said the lower rates would let businesses retain more of their profits and expand their operations. Arganbright said it’s particularly important in areas near South Dakota, which has no income tax.
“It matters to people who are choosing where they’re going to live and what they’re going to do,” he said.
Still, critics say the income tax plan would create financial problems for the state and do little to attract new residents. Lowering the top rate also would provide a much larger tax savings for the wealthy than the middle class because more of the wealthy’s income is taxed at the top rate.
The automatic tax cuts in the governor’s plan would have worsened the state’s 2009 budget crisis had they been in place during the recession, said Renee Fry, executive director of the OpenSky Policy Institute, which opposes the bill. State tax collections were relatively strong the previous year, which would have triggered a tax cut at the same time revenues were plummeting.
Fry said factors such as weather, costs of living, job opportunities and quality schools play a larger role in drawing new workers and businesses to the state.
“If you talk to young people about why they leave, it’s not because of taxes,” she said.
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