After eight hours of debate, lawmakers on Wednesday advanced a tax package that would ultimately cost the state more than $900 million – roughly one-fifth of the state budget – annually while largely benefiting out-of-state corporations and the wealthy. The measure – LB 873 – will be up for second-round debate on Tuesday.

During Wednesday’s debate, some lawmakers raised concerns about the tax package’s impact on the state’s ability to fund key services as well as the fact that most of the tax cuts would go to wealthy Nebraskans and out-of-state corporations. Despite these concerns, the measure advanced to the second round without additional fiscal guardrails or provisions to provide more relief for low- and middle-income residents. By FY 28, LB 873 as advanced would:

  • Phase in a full exemption of all Social Security income from taxation. This measure would reduce state revenues by more than $74 million a year.
  • Lower the state’s top personal and corporate income tax rates to 5.84% over the course of several years. These cuts would annually reduce state revenue by about $415 million;
  • Set the minimum level of the LB 1107 refundable income tax credit at $561 million. This measure would annually increase the credit’s state revenue impact by more than $220 million; and
  • Create a new refundable income tax credit for community college property taxes paid, which would reduce state revenues by more than $195 million a year.

Along with LB 873, the Legislature on Tuesday will hold first-round debate on LR 264CA, which calls for Nebraska to replace income, sales, property and inheritance taxes with a consumption tax on all new goods and services. While the measure doesn’t call for a specific tax rate, Institute on Taxation and Economic Policy analysis shows a consumption tax rate would need to be at least 20% to be revenue neutral.

That means Nebraskans would essentially have to pay a sales tax of at least 20% tax on all purchases of new goods and services to prevent large revenue shortfalls and cuts to vital state and local services. If adopted, Nebraska would be the only state to have ever replaced all other taxes with a consumption tax.

Read more about the consumption tax proposal here.

LB 873 is the first item on Tuesday’s legislative agenda. Debate will begin at 9 a.m. on Tuesday. Nebraska Public Media will stream debate live.