COLUMBUS — Lt. Gov. Mike Foley knows tax reform can be a tough sell in the state Legislature, but he believes the plan unveiled this week by Gov. Pete Ricketts has what it takes to pass senators’ scrutiny.
“It will be difficult. It’s always difficult to adjust tax policy,” Foley said Friday during a media tour promoting the property and income tax relief plan Ricketts outlined two days earlier during his State of the State address.
But Foley, a former state senator and auditor, said this year’s version of the tax proposal is what’s needed to continue the governor’s push to grow Nebraska and provide assistance for agricultural producers stuck in a “rough patch.”
“We’ve got to bring some meaningful property tax relief to our farmers and ranchers. That’s our premiere industry,” Foley said during an interview at The Telegram office.
Nebraska’s net farm income has declined from about $7.5 billion to around $4 billion over the past four years as commodity prices dropped, according to Foley, who noted that this slump impacts the entire state.
“When you wipe out $3.5 billion of income to our farmers, that hits every shop on Main Street,” he said.
It’s something he and Ricketts hear about over and over as they travel the state and the reason they keep pushing for more property tax relief.
The proposal introduced this week by Ricketts would restructure the way the state provides property tax relief by offering refundable income tax credits to owner-occupied households in Nebraska and agricultural landowners who live in the state. Landowners who reside outside Nebraska wouldn’t receive the credits.
Eligible property owners would receive a credit on their state income taxes equal to 10 percent of the tax bill on their home or farm. The credit for homeowners would be capped at $230.
Additional property tax relief would be pumped into the program in the future during years when state revenue exceeds forecasts. Ricketts estimates the program would provide more than $4 billion in property tax relief over the next decade.
Personal and corporate income tax rates would also be reduced under the new tax proposal:
• The top personal rate — paid on income of more than $29,830 for single taxpayers and $59,660 for couples — would drop from 6.84 percent to 6.75 percent in 2019, then to 6.69 percent in 2020.
• And the top corporate rate — paid on income of more than $100,000 — would drop from 7.81 percent to 6.75 percent in 2019, then to 6.69 percent in 2020.
Currently, 90 percent of individual income taxes paid by Nebraskans are at the top individual rate, and 90 percent of Nebraska businesses pay the top rate, according to the governor’s office.
“Lowering these rates will lower the burden on small businesses that drive our economy, and help attract new opportunities,” Ricketts wrote in his weekly column released Friday.
Part of the challenge of passing major tax reform comes from a roughly $200 million revenue shortfall the state is projected to face over the current two-year budget cycle.
Foley said the governor’s office is addressing this issue by cutting operating costs and making state government more efficient while still providing essential public services.
The governor’s budget proposal calls for a 2 percent spending cut this fiscal year followed by a 4 percent reduction next year while protecting funding for K-12 public education and child welfare, which would actually see a $35 million bump.
“We’ve got a meth problem in this state with more and more families getting caught up in the drug culture, and when they do their kids become endangered,” Foley said of the need to boost child welfare funding.
Money left over from the last budget cycle would be used to address the state’s overcrowded prison system, he said.
Foley also noted that the state has cut expenses by reducing its workforce by roughly 500 employees over the past year and eliminating another 1,500 or so vacant positions.
“We’re running government better with fewer people,” he said. “That’s a big part of the solution here. We’ve got to get smarter about how we run state government.”
The lieutenant governor and governor are both confident the Legislature can pass a balanced budget while still providing tax relief.
“I think we can get that done,” said Foley, who pointed to a February meeting of the state’s economic forecasting board as a “critical” time in the process.
Ricketts is also proposing an additional $10 million be spent on workforce development over the next two years.
Foley said training workers to fill the available jobs across the state and getting the unemployed back on company payrolls will result in more tax revenue and less money spent on social programs.