LB 401 (1997)
May 7, 1997
PRESIDENT ROBAK: LB 271A advances. LB 401.
CLERK: (LB) 401, a bill by Senator Warner. (Read title.) Bill was introduced on January 15, at that time was referred to the Revenue Committee. The bill was advanced to General File. There are amendments pending.
PRESIDENT ROBAK: Chair recognizes Senator Will to open on the bill.
SENATOR WILL: Thank you, Mr. President, members of the body. I rise in support of the advancement of LB, 401. This is a bill that was introduced at the request of the Governor. It is, as I'm sure you all know, a general income tax rate reduction bill, as originally introduced. It has ... was amended by the committee. Those are amendments that will be taken up, I assume, as soon as I finish opening. I don't want to spend a great amount of time discussing the bill at this point. I do want to make some points about it, however. This is a bill that I introduced at the request of the Governor in previous years. It was My opinion then that we had sufficient revenue to justify reducing the general income tax rate in the state. Obviously, that case has been greatly bolstered by what we all know to be the increase in state revenues beyond what has been anticipated
by our Revenue Forecasting Board and by the various entities that estimate the amount of revenue we will have coming in. This is, I believe, a result of a stronger economy than has been anticipated in the state of Nebraska and, because we do have more dollars coming in than we had expected, I think a bill such .as LB 401 is completely justified in that a basic philosophy of government, as far as I'm concerned, is that we ought to try and match tax revenues with expenditures and expenditure needs as closely as possible with a cushion, which we have provided for with respect to LB 401. The fact is if rates bring in that much money, that much more money in excess than what we anticipated and than what we anticipate spending, then I think it's entirely justified to decrease rates at that point. It's just that simple. People have paid in more money than the government needs. At that point the government can turn around and say, look, we've got more money than we thought, at this point we can entirely justify decreasing the income tax rate. That's what LB 401 does. It gives the money back straightforwardly in a fashion that I believe goes back to those that paid it in and rights the revenue system of the state in that fashion. The re are committee amendments that we will be considering, that I will be opposing. I don't want to talk about those at this point. I simply want to say... emphasize the fact that we have a revenue decrease here that is entirely justified. In addition, I think when you look at surrounding states, a number of surrounding states have reduced their income tax rates in the last couple of years, and the result there is that they make their states more attractive to individuals who may be wanting to relocate to those states, either individually or relocating businesses there. And Nebraska certainly, in my mind, needs to stay competitive with those states. I think that's what LB 401 does. It puts us in a position where we can go out and make a case for businesses locating in the state, for people moving to the state. The main complaint that I hear in the last year or so, in the last and a half I would estimate, from the business community is we don't have enough people, we don't have enough people in the state of Nebraska to occupy the jobs that might be here otherwise. And I think we're only serving ourselves well by decreasing the tax rate, making the state more attractive for individuals to move in and further stimulating the economy. The economy right now is so good that we have such a low unemployment, rate that that's become a problem, and I think by
enacting a measure such as LB 401 we're only stimulating that economic environment and, in fact, down the line increasing the population, if that's what's necessary, and increasing the tax base, and it's important. When you think about revenue, you know, revenue's simple. It's base times rate equals revenue, and if you increase that base then the rate will take care of itself. And if we can increase that tax base then we are simply progressing as a state. That's the reason that I am a cosponsor of LB 401, the reason that I am opening on the bill. I would hope that the body would look favorably upon this bill. As I said, we will be discussing a committee amendment that there will be substantial discussion over. There will be an amendment to that amendment that there will also be substantial discussion over I am sure, but I would hope just as an initial opening that the concept of LB 401 is a good one given the financial condition of the state and given the needs of the state, and I would hope that conceptually this is something that the body would consider and would advance to Select File. With that, I would close my opening.
PRESIDENT ROBAK: Thank you, Senator Will. Mr. Clerk.
CLERK: There are Revenue Committee amendments, Madam President.
PRESIDENT ROBAK: Chair recognizes Senator Wickersham to open on the committee amendments. (AM1315 is found on page 1381 of the Legislative Journal.)
SENATOR WICKERSHAM: Thank you, Madam President. Senator Will laid some of the groundwork for consideration of this issue. Obviously, there was a vigorous debate in the Revenue Committee before we adopted the amendment that you're going to be asked to consider this afternoon. The Revenue Committee agreed that there were going to be the opportunity for a reduction in future revenues supported in part by a surplus in the current biennium and based on projections for spending and revenues in the next biennium, and then in some respects in the following biennium. By the time we finally vote on this bill I think you will have had, I hope, a preview of, in some respects, what the budget is going to look like and what the next four years are going to .look like for the state of Nebraska, because there are two issues that are critical for us to address and decide upon as we
deliberate LB 401. The first is what can we afford. Now normally you will hear those words, what can we afford, in conjunction with an appropriations bill. In other words, what can we afford for a prison? Can we afford $65 million for a new prison? Can we afford $10 million for additional personnel for the prison systems because they have additional staffing requirements, for example? Can we afford anything that is in the budget where we will actually write a check and pay for it? But the same thing applies to an income reduction bill such as 401. Can we afford it? Can we afford it? I passed out a paper that I hope you'll take some time to examine. It illustrates the budget impacts of LB 401 as introduced, as it would be reflected if we adopted the committee amendment or if we adopted AM1785, which I believe Senator Maurstad will be speaking to next. Those budget impacts are derived from the materials that you see attached to that handout. Those are materials that are prepared by our Fiscal Office. They represent, to the best of our ability at the moment, the current status of bills that are on Select and Final with the impact of this bill. Now part of the issue in the Revenue Committee was the sustainability of the cut or the reduction that was proposed originally by the Governor, and you see the first illustration that in the fourth year we have potentially a significant problem, and this handout does not deal with just a two-year period. It deals with a four-year period, and it is critical for us to look forward at least four years out when we're examining this issue. AM1315 varies from the Governor's proposal because it does not continue on into the next biennium, and you can see the immediate impact on the fourth year's budget status. The other thing that the committee amendments do, and I'll talk about that in a moment, it goes to a slightly different issue, but then you'll also see the impact of 1785 and, again, those are derived from numbers that are prepared by the Fiscal Office based on the status of bills now on Select and General File as best we were able to compile them. And, in fact, we've compiled that based on floor action this morning when Senator Beutler amended a bill and all of a sudden an issue that had been on General File and maybe wasn't going to pass is suddenly on Select File destined for passage and costs $4.8 million over the four-year period. We do have to assess what we can afford, and if you simply look at the examples on the worksheet it is reasonably clear to me that what vie can afford is the committee amendment. We can afford the
committee amendment because we could perhaps reduce expenditures by the 45 million that is shown in this biennium. In the fourth year we could probably meet that with reduced expenditures. Senator Maurstad would immediately respond you can meet most of that by simply taking money out of the cash reserve and I expect there to be a spirited discussion of that. It is true that we could take money out of the cash reserve, but we will have to decide whether it would be prudent to do that because the cash reserve is set up to receive extraordinary receipts and then to use them typically on a one-time basis. It's not intended to fund ongoing spending operations, at least in my recollection. If we use it to fund an income tax reduction that extends into the future, we'll be using a very specialized fund that's derived from one-time revenues essentially and Using it for ongoing operations, a very, very dangerous budgetary principle. The second issue that is raised by the committee amendments and by this bill in general is, how should a reduction be implemented? The suggestion in the proposal that was brought to the Revenue Committee was that it should be given back across the board, and I will use the words "given back". But the words "give back" really aren't appropriate in this context because we're not writing anyone a check and giving them money back, although somebody will point out that we have $76 million worth of surplus and that we could give that back. Well, that surplus, is true that that was derived from operations in the current biennium, but we can't literally give that back to anybody by writing a check. Besides, we could just as justifiably say that we're going to use that $76 million to pay for a $65 million prison that we all voted for in the last two or three years by various crime bills. So I don't think there's an issue of giving it back. The issue is, whose taxes are we going to reduce in the future and what effect is that going to have on the economy of the state of Nebraska? It is interesting that Senator Will noted that we have very low unemployment in the state and we seem to be having trouble attracting workers to this state. I don't know whether it's because they have low wages or because they're taxed, those lower income workers are taxed at too high a rate. At any rate, if you examine the other handout that we've prepared for you, you'll see that the committee amendment, by combining a rate reduction and an increase in the personal credit, benefits more taxpayers across the state of Nebraska than the Governor's proposal, and you'll
see the charts that indicate where the break-even points are in terms of income if you're a joint taxpayer or if you're a single taxpayer. And you'll see a chart that shows the combination of all taxpayers, which would also include another category, head of household. The fact of the matter is that the committee amendment achieves the objective of having a reduction in revenues of about $117 million. The Governor's proposal was about $112 million. We're actually proposing to have a slightly greater reduction than the Governor initially proposed. And then, on top of having the reduction that the Governor proposed, we are proposing to distribute that in a way that I would characterize as better for more Nebraskans and that will direct the income tax reduction arguably to those people who need it most. Whether it will stimulate the economy as much as saving X number of dollars for a very high income individual I can't tell you. That's the old trickle down theory of economics that we saw in the Reagan years and I think was largely discredited subsequently. In fact, we ran huge deficits after that kind of a proposal was adopted at the federal level. I think we ought to learn a little bit from history. At any rate, the committee amendments reduce future revenues in much... in a slightly greater amount than the Governor's original proposal. it distributes it more equitably to the citizens of the state of Nebraska, giving them the benefit in a much broader based fashion and in a much more inclusive fashion for our good fortune,...
PRESIDENT ROBAK: One minute.
SENATOR WICKERSHAM: ... and it is problematical, I think, as to whether or not that good fortune will last. I know that Senator Maurstad is going to say that the roses are going to bloom year after year and day after day, but that is not the way it works, and I do not expect that today's rosy future is necessarily tomorrow's. The committee amendment is a more cautious, prudent, and a more broad-based approach than I believe we will see from other proposals this afternoon.
PRESIDENT ROBAK: Thank you, Senator Wickersham. Mr. Clerk.
ASSISTANT CLERK: Madam President, the first amendment to the committee amendments that I have is from Senator Maurstad. This
is Amendment 1645. Senator, I understand you wish to withdraw that and substitute 1785.
SENATOR MAURSTAD: That's correct, Madam President, if I could ask for that substitution.
PRESIDENT ROBAK: Is there any objection? Seeing none, it is so ordered. Senator Maurstad, before you begin, Senator McKenzie announces that there are 21 fourth graders here from Chapman School in Chapman, Nebraska, and their teacher, and they are all seated in the north balcony. Will you all stand and be recognized, please. Thank you and welcome to the Nebraska Legislature. Senator Maurstad. (AM1785 is found on page 1781 of the Legislative Journal.)
SENATOR MAURSTAD: Thank you, Madam President, colleagues. First of all, I want to indicate my appreciation for Senator Hilgert prioritizing LB 401 because if that would not have occurred we may not even be having this debate today, this discussion on what I think is important public policy decision for us for the coming years, and that's providing an income tax cut to the citizens of this state. AM1785 in essence becomes the bill and it does four things. The first thing it does is increases the personal exemption $20 each year for two years, as in the committee amendment. The second thing that the amendment does is reduces rates across the board 5.5 percent permanently, as included in the original bill as introduced by Senator Warner. Third, it hold state aid to schools harmless relative to the adjustment that needs to be made in that regard. And, fourth, the excess general fund receipts at the year end will not be transferred to the Cash Reserve Fund. Four things: in essence doing part of the committee amendment; returning back to the original bill, across-the-board permanent 5.5 percent reduction in the rates; holding state aid harmless; and last, and I hope you'll listen, it's not taking funds from the cash reserve. The cash reserve stays at $40 million. What it does is the excess General Funds receipts would not be transferred to the Cash Reserve Fund. Why this amendment? I introduced it and have said from the very beginning because I believe it combines two good ideas, and obviously if you combine two good ideas you also have a good idea- That's why I think this amendment should be adopted to the committee amendment and become the bill. It
takes advantage of the fiscal picture that has continued to develop as we go through the session. I don't believe the excess revenue should be collected, and that's what we would do if we are not going to reduce the rates. We would collect excess revenue that is not needed to maintain our current spending. That revenue should not be collected in the first place. That's what the rate across the board would do. That's what the income tax credit would also do. So I want to emphasize we're not talking about giving it back to the taxpayers. It is the taxpayers'. This proposal would allow them to keep their hard-earned money and Use it as they see fit for their children's education, for their car payment, for rent or for their house payment, for food, heat, electricity, those types of things that are good for families and good for our communities. So we're not giving it back; we're letting them keep it. In fact, this will provide continued long-term benefit for the state of Nebraska. Reducing the rates across the board will provide additional fuel to keep our solid economy rolling as it has been. Anyone that reads the Wall Street Journal, other financial publications know that our financial picture, the stability of it in the state of Nebraska is strong in the Midwest. The Midwest sector is the strongest across the country. That's why we're in the Situation where we are now. We need to maintain and continue that. Letting excess revenues stay with our taxpayers will, in fact, provide that to occur. What about property tax relief? We've talked about that. it's a concern to all of us. It's certainly a concern of mine. This doesn't compete with property tax relief. To me, this goes hand in hand with property tax relief, will allow property tax relief to occur, state aid to local governments will continue to increase. Even if we do nothing with LB 180, even with we do nothing with 306 and some of the other revenue bills, state aid is going to go up. I think it needs to go up some more, the dollar amount we'll decide yet. This goes hand in hand with that. This allows taxpayers to maintain from their paychecks additional revenue that they can use to pay property taxes if they want to, to support other worthy projects within their communities if they want to, but they can spend it better than we can at this point. Is it affordable? I think it is. The Governor thinks it is. The individuals, and I appreciate, that cointroduced this amendment think it is. I think this is affordable. A 5.5 percent rate adjustment is a very modest
proposal. Iowa next door, as I'm sure will come out by others, is 10 percent. That's modest in comparison to what's occurring in some sectors of the ... of our United States. So this isn't giving away the farm. A 5.5 percent rate adjustment now is not that substantial, although it is very important. We need to accomplish a meaningful individual income tax cut now and we have the luxury of being able to do it without affecting current expenditures. Most of the time when you have to deal with these types of things you're having to cut expenditures to make room for a tax cut. We have the luxury, because of our robust economy, because the amount of excess taxes that we're bringing in is so high, that we don't even have to look at affecting our current expenditures to be able to afford to do this. Certainly it's affordable. But, quite frankly, that's not known yet because there are a lot of unknowns out there. The budget hasn't even been discussed yet, so there are a lot of assumptions being made now that might happen and might not happen. So I don't think it's known yet. I think we need to advance this bill over to Select File so that it can sit with the other proposals that are going to compete with what is not an unlimited amount of resources, but it certainly needs to be moved across. I think this proposal is the best way to do that. I want to comment on the out years. The out years are certainly important, Madam President, but they're not critical. Out years are a fiscal tool that we use to give us a glimpse of what may occur three years, four years, five years from now. That shouldn't dictate our public policy for today, for the next two years. It ought to be looked at. It should be considered. We certainly don't want to do anything that's haphazard. This amendment doesn't do that. Those out years are based on assumptions themselves. Read the budget bill ... booklet that's been put out by the Appropriations Committee and you can get an idea of the assumptions that are based ... the out years are based upon. Very conservative, both from a revenue perspective and an expenditure perspective. This tax cut can be maintained. it could be maintained into the future. Senator Wickersham indicated that it was simple to see that this amendment was not doable. There is nothing simple about our revenue ..and expenditure picture in the state of Nebraska, let me tell you. We've been working on the expenditure side since January. It is very complicated. It's important to take a critical eye at all the information that's provided to us, but it is not simple. We
need to have a good debate on this and I'm sure that we will. I think that a growing economy will benefit all Nebraskans. Now, quite frankly, this is not a competition between the tax credit and the across-the-board rate adjustment. We're going to do both. And so we have some indications of why a tax credit might be good. Certainly is. It's a part of this proposal. It would seem to we those that support doing a tax credit would be supportive of this amendment because they are, in fact, going to get what they originally put forward. Cutting taxes, as I indicated earlier, will help to maintain our solid economy--more Nebraskans working, more Nebraskans paying taxes. I'm going to conclude opening remarks and say that I think that we have an opportunity here that we can't let slide by. I believe this amendment will, in fact, provide both ideas. It will, in fact, provide for continued economic growth. It is fair. Those that put it into the kitty are going to be able to take advantage of what this continued growth in economy will provide in the future, and I hope that everyone will support the advancement of LB 401 with Amendment 1785 as a part of that. Madam President, what ... the balance of my opening, I'll yield to Senator Hilgert.
PRESIDENT ROBAK: Senator Hilgert, there is a minute and a half remaining.
SENATOR HILGERT: Thank you, Madam President, members. My light's on next so I'll probably continue speaking. it shouldn't take the full time, but I would like to thank the Revenue Committee for ... and Vice Chairman Coordsen for all their help in getting 401 to the floor. I know there's...
PRESIDENT ROBAK: One minute.
SENATOR HILGERT: ... real differences of opinion upon the myriad of approaches to take, could reduce our income taxes, and I just wanted to thank the Revenue Committee for getting it out of committee. And I also want to thank Senator Maurstad, too, for filing this compromise amendment which does, as he so aptly put, does both the credit and the tax cut. I have passed out a sheet that I received from the Department of Revenue this morning that shows, basically, a 26 million additional surplus or increase over the last most recent projection, which even should give more impetus to the passage of an income tax cut.
PRESIDENT ROBAK: Time. Senator Hilgert, you may continue. Your light is next.
SENATOR HILGERT: Thank you, Madam President. And, furthermore, I did want to declare my full support for this compromise amendment that Senator Maurstad had filed and others, I certainly cosigned it. And there's something that I'm certainly always learning. I am certainly not what you might classify as a veteran legislator yet and some of the more senior experienced members, in fact even this morning I was reminded about the process, and the process in the Nebraska Legislature doesn't have a small "p", 11, it has a big "P". It's a concept. It's how this body works towards a final resolution of difficult issues and myriads of choices that are presented with it. When we advanced LB 180 and also LB 806, both concurrently, we decided that at a later date, and then with, of course, the budget of which we'll be hearing more about, where all these numbers fall within the process. Let the process do the job. Let the process work this out. I believe that there is room within this process and in this time in the state of Nebraska that we are experiencing these surpluses that we also add LB 401 as amended to that process, so that on Select File we can come together, look at the options that we have, the ... make some of the tough spending decisions that we have, and I do believe that there should be on the table and for the consideration of an income tax cut, as amended by Senator Maurstad and others. With that, I would just declare my support for the Maurstad amendment to the committee amendments and ultimately, as amended, I hope that the body would advance LB, 401 to Select File. Thank you very much.
PRESIDENT ROBAK: Thank you, Senator Hilgert. Senator Chambers, followed by Senators Coordsen, Will, Schellpeper, Landis, Beutler, Wickersham, and MaurBtad.
SENATOR CHAMBERS: Madam President, I move that this bill be indefinitely postponed. I call the question and move that we adjourn sine die. Got your attention, didn't I? Talking nonsense. Talking nonsense. Now that I'm going to speak sense everybody's going to go back into hibernation. But when Senator Will was talking about the low level of unemployment it gives me
the opportunity to mention that in my area, Senator Will, that's not true at all, and it's because so many incentives and benefits are given to those who will move job opportunities away from the area where there is a high unemployment rate among a potential work force and the Legislature and nobody else is willing to do anything about that. I cannot compel you to do it and you'll never see me crawling around in here on my hands and knees begging you to do what ought to be done. But if this proposal is based on the existence of a low rate of unemployment that right away makes me against it because it is totally inaccurate and foreign to what my experience is. I think it's unwise.... Let me ask Senator Maurstad a question before I proceed.
PRESIDENT ROBAK: Senator Maurstad.
SENATOR CHAMBERS: Senator Maurstad, is there going to be anything in the way of a refund under your amendment?
SENATOR MAURSTAD: No.
SENATOR CHAMBERS: Is there going to be anything in the way of a credit under your amendment?
SENATOR MAURSTAD: Yes. There's an increase in the personal exemption credit.
SENATOR CHAMBERS: Okay.
SENATOR MAURSTAD: Twenty dollars.
SENATOR CHAMBERS: And what will the total amount be in a year of that amount if you know, just roughly?
SENATOR MAURSTAD: That component is about $56 million, I believe. Is that correct?
SENATOR CHAMBERS: And, oh, you're looking the wrong way. If...
SENATOR MAURSTAD: Why don't you hold on just a second. That's...
SENATOR CHAMBERS: Oh, okay.
SENATOR MAURSTAD: Maybe you can ask Senator Wickersham on the credit aspect.
SENATOR CHAMBERS: Oh, okay.
SENATOR MAURSTAD: He's worked on that.
SENATOR CHAMBERS: Senator "Wizard", I would like you to answer that question, please.
SENATOR WICKERSHAM: Senator, he was saying $56 million. That is...it's closer...it's a little over... I think it's about 26-27 million dollars out of, what you see is the total revenue reduction. Actually, the committee proposal is fairly well balanced between the credit and the rate reduction.
SENATOR CHAMBERS: So the rate reduction will take us from what to what? What rate? When you talk about a rate reduction, what is the rate now, and it will drop to what?
SENATOR WICKERSHAM: In which proposal, Senator?
SENATOR CHAMBERS: The one you're talking about. Oh, I guess it's Senator Maurstad's. That's the one that we're on now, isn't it?
SENATOR WICKERSHAM: Yes.
SENATOR CHAMBERS: Okay. So in his proposal what would it be?
SENATOR WICKERSHAM: I ...
SENATOR CHAMBERS: But, at any rate, the two of them together, the rate reduction and the exemption, would come to a total of how much a year that no longer is going to be realized through the tax gathering? Oh, roughly the $56 million? 'Cause Senator Beutler's saying that. I just want a rough estimate.
SENATOR WICKERSHAM: No, no, Senator, if you just did it, you can see it on the status sheet, the first year costs about 67
million, the next year costs about $54 million.
SENATOR CHAMBERS: Okay.
SENATOR WICKERSHAM: The two of them combined.
SENATOR CHAMBERS: Okay, thank you. Member of the Legislature, I would rather see, instead of making a move that is not of that much consequence to each individual, it sounds like a lot in the aggregate, you could take that money and endow a scholarship and do something of value. This that we're doing now sounds good, but I would like to ask... I'll ask Senator Wicker ... oh, Senator Maurstad is back at his mike. Senator Maurstad, they're talking about the robust status of the economy. You're guaranteeing against a downturn for a lot... at least how many years?
SENATOR MAURSTAD: I'm not guaranteeing anything, Senator, but the projections by the Forecasting Board indicate that our economy is going to stay on check as it is now and why they, at their April meeting,...
PRESIDENT ROBAK: One minute.
SENATOR MAURSTAD: ... increased revenues forecast $46 million again.
SENATOR CHAMBERS: If they're wrong and there's a downturn, what happens based on our having created this exemption and reduced the rate? Do we leave those things in place if there's a significant downturn in the economy or the amount of tax money that comes in?
SENATOR MAURSTAD: The credit extends for two years. The 5.5 percent across-the-board rate reduction is permanent in my amendment. If that occurred, what you're talking about, we would have to do what has been done before and that's assess the situation at that point in time.
SENATOR CHAMBERS: And maybe raise the rates again.
SENATOR MAURSTAD: Raising the rates would certainly be a potential.
SENATOR CHAMBERS: Thank you. Arid my time is almost up but when we look at LB 271, which just moved which is going to give a break to the wealthy and to the new car dealers and gouge the mass of taxpayers, those who pay on vehicles, that goes on forever. I'm not for Senator Maurstad's amendment but...
PRESIDENT ROBAK: Time.
SENATOR CHAMBERS: ... my time is up and I'll have to go into it more later.
PRESIDENT ROBAK: Thank you, Senator Chambers. Senator Coordsen.
SENATOR COORDSEN: Thank you, Madam President and members of the body. Little bit of history with respect to 401. (LB) 401 was voted on a number of times in Exec Session as the Governor had proposed and then the vote was always four in favor and four against, and there it stayed. And the concern was that under that particular structure the benefits accrued too heavily toward those who had the most taxable income for Nebraska tax purposes. The deadlock was broken when two things happened. One, Senator Wickersham brought to the committee his idea of splitting up the amount of money, and the amount of money was something like 55 or 56 thousand (sic) dollars, depending on I suppose how wealthy we are the next tax year, but he proposed a $20 increase, I believe it was a $20 increase, in the individual credit and a 3 percent across-the-board rate reduction in each of the rate groups. The net result of that was shifting the impact around without changing the amount of money that was not going to be collected from the taxpayers in the first tax year that it was going to be applied. I would invite your attention. Senator Wickersham has handed out really a pretty easily understood set of charts and that sort of thing with respect to the Revenue Committee proposal. Now I have to share with you that not once in the years I've been here have I ever voted for an income tax rate reduction because it was my philosophy that At least that was a tax that was based upon the amount of money that a person had been paid or had earned or had accumulated from their own labors or investments over a period of a year. And it is, in fact, designed, as the federal tax was, to be a
progressive tax. The sales tax, by the very nature of it, is a regressive tax and it affects those with lesser income simply because for the necessities of life they spend more of their income on those things that are liable for sales taxes. Property taxes are a crazy system. I don't know whether they're progressive, regressive, sideways or upside down, but they do lots of things including tax borrowed money and all sorts of things like that separate from the income tax. And I'd always felt that the income tax at the rates that we had were, in fact, the least oppressive tax. But I supported the Wickersham amendment again, the first time in my life that I'd ever supported something like that, because it seemed to present if we're going to collect less money from the people of the state of Nebraska via the income tax method, then it seemed to present the more rational approach as to how to do it and presented I resented the better reduction to people who did not have a whole lot of money within their household cash flow stream left after they'd paid the taxes. The impact, the benefit, tends to fall more on the larger number of people than it does under either one of the proposals, the original bill or the...
PRESIDENT ROBAK: One minute.
SENATOR COORDSEN: ...Maurstad amendment. So with that, it's my position I am at this time supporting the Revenue Committee amendment. Thank you, Madam President.
PRESIDENT ROBAK: Thank you, Senator Coordsen. Senator Will.
SENATOR WILL: Thank you, Madam President, members of the body. I rise in support of the Maurstad amendment. Frankly, I continued to support the green copy of the bill in concept because I thought the original proposed rate reduction was the way to go. At this point, I think Senator Maurstad has hit upon a good idea, which is in the nature of what I guess I would term a compromise and that is incorporating the idea of a credit in addition to a rate reduction, and the reason being, frankly, that I think it addresses some of the concerns that the Revenue Committee had in adopting the committee amendment as well as the initial concerns that prompted the introduction of LB 401, and that is a straight-out rate reduction. The reason that I hesitate in going the credit route at all is that essentially
what that amounts to is a revamping of the tax system, a restructuring of the way that we work the income tax, of where the dollars come from and, in fact, that is a legitimate issue and, in fact, on another day, on a different bill, on a bill that was proposed to do this I may well take that into account. But the fact is the simple matter of having additional revenue and needing to address that I think ought to take precedence in the discussion of LB 401 and for that reason I support the original concept and...or the ... what I would call I guess the hybrid Maurstad concept, which I think addresses the concerns that have been voiced that I have and that result from what turns out to be an abnormally robust economy or, if not abnormal, at least unexpected robust economy. The issue of sustainability is something that we talked about, that I know is important to Senator Wickersham. The Revenue Committee discussed it at length and, frankly, I think Senator Maurstad is correct in saying that we certainly have the ability to react to any changes in the economy, to any downturn in the revenues that might occur and, in fact, if we need to we can come back and we can adjust rates. We can adjust tax bases. We can adjust spending. We have that ability. That's the reason.. the Legislature meets every year. We can come back and address those issues and that is something that we obviously do in any number of areas, not just revenue, but obviously spending, other laws such as entitlements, things of that type, and we can do that. But right now we have the ability to make a change in the income tax system to acknowledge that we are collecting vastly more taxes than the state system needs right now, and the fact is we can afford to reduce these taxes now. And, with respect again to sustainability, if you look back four years ago and look at what the projections were for what are now the current years but then were the out years, there is no way on earth that they would be predicting anything close to what we are experiencing now as far as revenue collection goes and, in fact, the same holds true for what are now termed the out years. Those are guesses. They're educated guesses, but they're guesses nonetheless. And the fact is right now I think we can afford an income tax cut such as that contemplated by LB 401. 1 think the Maurstad amendment is the way to go and I would urge the committee or the Legislature to adopt that amendment.
SPEAKER WITHEM PRESIDING
SPEAKER WITHEM: Thank you, Senator Will. Senator Schellpeper.
SENATOR SCHELLPEPER: Yes, thank you, Mr. Chairman and members. I was going to rise to support the committee amendments, but I'm also going to oppose the Maurstad amendments. Many of you I know have said that we can support LB 180 or LB 806A, also do the Maurstad amendments, do a permanent income tax. I'm not convinced of that. As you go across this state, if you ask anybody what's the number one concern in this state, they're not going to say high income taxes. They're going to say property tax. I think time and time again that's our main problem in this state is high property tax. Because we don't get some of the business in this state is because we have high property tax. It's not because we have a high income tax. That's got nothing to do with it, almost. Very little to do with it. it's basically the high property tax. When you look at where the revenue comes from in this state and the surplus, basically it ,comes almost 50 percent sales tax and 50 percent income tax. It's off just a little bit, basically about half and half. Why do you want to give a permanent income tax cut when half of the surplus comes from the sales tax? If you're a low income person and you have to spend more of your income for Bales tax, shouldn't you get a rebate, too, or get a reduction, a permanent reduction? I think if we're going to give a permanent income tax you ought to give that, too. The Revenue Committee proposal is a much better way to go. It's more fiscally sound. if anybody in this body has ever had to come and raise income taxes, it's not a easy job to do, and you will have to do that some day because the economy is not going to stay where it is right now. Everybody knows that. We've always had the ups and downs. The Forecasting Board has said, well, it's going to stay pretty level, but if you look at past history it's always been a kind of a roller coaster and it's going to be that way again. It's just always been that way. We've had the figure passed around a lot about that we're going to put $100 million into schools. Is that the right amount, or is it 150 million? What would be the most popular in this state at this time? Would it be to put 150 million into education, cities, counties, to local governments, and lower property tax? Or would it be to give back some of the income tax permanently? I think it's a much better way to go to follow the committee amendments and do that
than it is to go with this here permanent income tax reduction. Now the committee finally agreed that we could do it because we have this surplus on a short-term basis, but not the long-term basis. If you have to come back in in two years and raise the income tax again, you'll have everybody behind the glass screaming bloody murder, don't raise income taxes, don't raise anybody's taxes. Well, then you have to cut programs. But I think, once again, the most important thing that we do at this time in this state is to cut property taxes. We have the vehicles out there right now to do that. Let's put money into those bills to cut property taxes, what the people are all complaining about...
SPEAKER WITHEM: One minute.
SENATOR SCHELLPEPER: ... and do the short-term income tax proposal rebate on... or credits. Go that route. You're taking care of everybody that way. But let's keep the money for the long term so that we can do property tax relief long term. Property taxes are not a short-term problem. They're a long-term problem because you pay these year after year after year. Let's do something about it. We have the revenues now. Now is the time to do it, not to back down now and say we're going to give back a permanent income tax. I support ... or I oppose the Maurstad amendment. I think the committee amendments are the more fair way to go. Thank you.
SPEAKER WITHEM: Senator Landis.
SENATOR LANDIS: It is hard to give your attention on a warm day like this probably when you've heard BO much and probably made up your mind already. Let me trade you something. I'll trade you some information that you don't know that is highly relevant if you'll give me your attention on this warm day. There is a rate reduction in the Maurstad amendment of 5.5 percent. It's sold on the idea that this treats everybody alike because you get back what you contributed, right? That's the reason that the 5.5 percent is fair. Isn't that in your thinking and isn't that what you've been told? That's not accurate. That's what I want to tell you, which is why I want your attention for just a moment. If you take a look at the tax benefits under a 5.5 percent reduction, 4 percent of the filers make over $100,000 a
year and they get 40 point ... oh, about 40.5 percent of the total tax benefits. How much of all the taxes of the state do you think they spend and contribute? Do you think they contribute 40.5 percent? That's what you're led to believe, isn't it? That's why it's justifiable, isn't it? They don't. They spend 32 percent of the taxes. This bill, this amendment gives more money to the rich back than they contribute as a share of all taxes. Why?- Because there are special rules that apply over $100,000 that phase out some of your standard deductions, and what we will do with the Maurstad amendment is to give 40.5 percent of the tax reduction to 4 percent of the filers who themselves are paying 32 percent of the taxes. What is fair about that? By the way, who do you think is in the middle? People between 30 and 60 thousand dollars are in the middle. How much of the benefit do you think they get out of this package? They get about 30 percent, 33 percent of the taxes that are paid in to the process. How much do you think they get back? Should be even up, right? That's the theory of the bill. Wrong. They get 25 percent. They get less. The middle income gets less of the dollars returned than they contributed. The rich get more of the dollars back than they contributed under this bill. Nobody's told you that. It's not sold you out there and I'd bet there are a number of commitments made on this floor on that rationale and that theory, and we all think we're giving a dollar back for a dollar contributed. We're not. It's why the Omaha Chamber of Commerce and the 77 crowd is out there fighting so hard. It's why they want it permanent, and once they get it permanent we will never see this again. Understand 40 percent of the taxes that we're going to give back are going to go to 4 percent of the people who themselves paid 32 percent of the taxes. Thirty-three percent of the population who paid 33 percent of the taxes will get 25 percent of the taxes back. Who wins? The very people that are out there behind this glass door fighting so hard--the rich, the wealthy, the powerful, the well-organized, the well-orchestrated. And this is not a fair across-the-board cut. This is a cut that the wealthy receive more of than they contributed. And if that's what you had in mind when you gave your commitment to support either the Maurstad amendment or 401, okay, but I bet you weren't told It. I bet that wasn't the rationale. And if I'm wrong, if I'm lying, I'm dying. This comes right out of the Department of Revenue statistics. Read it yourself.
SPEAKER WITHEM: Senator Beutler.
SENATOR BEUTLER: Senator Withem, members of the Legislature, there are a couple of aspects apparently of Senator Maurstad's proposal that are troublesome. Senator Landis has very articulately described the distribution question and, before him, Senator Schellpeper described the problem of a permanent cut as opposed to a two-year cut. And I just want to add one point, but I think a very, very important point. When you talk about the out years, the years beyond the two years that we're budgeting for, Senator Maurstad says, oh, well, these are very nebulous, these you never can tell what's going to be out there one way or another and we can adjust when we get out there. But there is one central fact that is not nebulous and that is out there and that is that the school finance levies are coming down from $1.10 to $1.00 and when they do there will be an excess of $70 million that the schools will once again be short, and when that happens we will again go into convulsions, as we have this year with (LB) 806, and once again be facing the question of how much revenues and where are those revenues. This time we were lucky, we were real lucky, the money's here. But what if the money is not here in two years, and we're talking big bucks again? What if the money is not here? Think of the squabbles and the fusses we're having this year just deciding on distribution when the money's in the pot. What is we were faced with the question of raising tax rates? Could you do that? I mean, be honest with yourself. You have to say it's much, much harder. So why should we put ourselves in a position with a known obligation out there of 70 million or so, maybe considerably more, in just a couple of years, why would we put ourself in a position of perhaps having to raise taxes to deal with that problem? Aren't we in a much, much better position to accept the committee's version of things, or to accept Senator Maurstad's, if he's willing to amend it to a two- year proposition? I mean, given what Senator Landis has said, I'm not sure how I feel about that now, but at the very least we ought not to make any sort of tax cut permanent beyond two years. I think that would be a major Mistake in the face of a known, of a very real and large known out year obligation to the children and the schools.
SPEAKER WITHEM: Senator Wickersham.
SENATOR WICKERSHAM: Thank you, Mr. President. I've heard some strange things this afternoon. They are truly strange. I have heard a member of the Appropriations Committee opine to this body that we didn't really need to care so -much about a four-year forecast, at least that's what I heard him say; that it was only a tool and presumably a tool that we didn't need to really pay much attention to. Now I suppose that you can take that position if it shows that the proposal that you have in front of the body creates a $258 million problem four years from now. I understand that. But the four-year forecasts are more than just tool. They are a harbinger. They are indications of what the future is going to be and if we don't pay attention to them the future is going to be very bleak for us. Now I'm going to be here three years from now and I will be a member of this body that will attempt to deal with the consequences of the Maurstad amendment if we adopt it. There may be some others in this body who are tempted to vote for it because they aren't going to be here and won't be here to deal with those consequences. But if you're going to be here two years from today and you're wondering why in blazes you went down the road that Senator Maurstad is suggesting today, then you'll have to remember what the value of a four-year forecast is and maybe, maybe after you have been bitten by that dog, you won't go back again. Now, suggesting that you have to be bitten once by the dog to understand the message is not what I think we need to do, because if we look at history we'll see the same thing. Others before us in this body have been bitten by the dog and then learned. Some of those folks are now gone. I wish we had them here to give us the historical record. If you look at the budget document you'll see some of that historical record. You'll see what happens when you have these wonderful years, when money seems to come piling in, so much money that you can't imagine what to do with it. And then you find out that what you did with it was not right. You'll see, if you look at the budget document, what happened in 1987 to 1988. We started having increasing revenues. Nineteen eighty-eight to eighty-nine, we had an 11.6 percent growth in revenues, a miracle. What were revenues the next year? Five point seven percent. What kind of decisions were made in 1988, 1989 while that marvelous budget surplus was out there? We were still
living with some of those when I became a member of this body. It has happened before. It could happen to us again today if we adopt what Senator Maurstad is proposing. If you look at the information that we have given you, you can see that even the committee amendment has a fiscal impact that may be a little difficult for a future session of this Legislature to address. And the prospect that the whole future of this state is for revenues increasing at the level that we're now seeing them so that we could sustain Senator Maurstad's ...
SPEAKER WITHEM: One minute.
SENATOR WICKERSHAM: ... proposal is really quite beyond my imagination. That is not what history would tell us. That is not what you can read for yourself if you care to examine the budget document. Senator Maurstad made reference to collecting taxes that we didn't need. Under the committee amendment we're not going to collect taxes we don't need. Those taxes will stay in the pockets of the taxpayers, as they would under his amendment. Those dollars stay in the pockets of the taxpayers because you adjust the withholding tables and you adjust the estimated tax payments that are going to be made by individuals. You don't take it back and you don't give a refund under either proposal. I don't want to collect money that we don't need. That isn't what the committee proposal would do. That isn't what Senator Maurstad would do either. There's no reason at all to bring it in and send it back out. Neither one of the proposals does that. I was a little bit surprised by...
SPEAKER WITHEM: Time, Senator. Would like to recognize in the north balcony we have guests of the Legislature, actually guests of Senator Chambers and we're pleased to have them here, the McLarty family. Could you please stand and be recognized? Senator Maurstad.
SENATOR MAURSTAD: Thank you, Mr. Speaker. First of all I'd indicate for those that would like to have the specific numbers that what we're talking about with this amendment is 91 million the first year, 80 million the second year. The credit aspect of that is 26.5 million the first year and about 27 million the second year. My amendment would carry forward the permanent 5.5 percent reduction, which would be a cost of about 56 million the
third year, 59 million the following year. I want to indicate, however, what I think is important for all of us to keep in mind, that what Senator Wickersham indicated was, in fact, sound prior to the April Forecasting Board meeting. At that meeting they increased revenues again $46 million. Now this is the autonomous group that provides us with impartial information on which to base our decisions, 46 million in addition. What's the difference in cost between the committee amendment and Amendment 1785? It's about $50 million. So this is not some wild- haired proposal that is out there that's irresponsible. This is in fact piggybacking on top of the work that the Revenue Committee has done. It's extending what the Revenue Committee did in the committee amendments.. It's putting two good ideas together. The cost, in essence, of putting the two ideas together, the Governor's original across-the-board proposal and the $20 increase in the exemption, is about $50 million. That's what we're talking about here. That's what all the scenarios that are being ... the dark scenarios that are being demonstrated and talked about, that's what it is--$50 million difference. Now I also want to indicate that I don't think this is the time that we need to pit Nebraskan against Nebraskan and get into some kind of a discussion that continues the dialogue of a, it seems to me, a familiar theme anymore, some type of a class warfare that's existing and going on out there. I think we're meeting the needs of all Nebraskans with this amendment. Think we meet them with the committee amendment. The Maurstad amendment doesn't deviate with that, the Governor supports, that the individual that prioritized the bill supports, 12-13 other individuals cointroduced the amendment support. The distribution of the 5.5 percent across-the-board cut as far as the dollar for dollar situation is not any different than the 3 percent that I believe Senator Landis supported out of the committee., So if there's something flawed with the 5.5 percent, there would have to be something flawed with the 3 percent that is in the committee amendment. So we have a little difference of opinion on numbers and that's going to occur if you use different bases to start from. I would give you this information. The top 6 percent of the income tax payers in Nebraska pay 40 percent of the income taxes; 17 percent of those with incomes greater than 56,000 pay 61 percent. Those that have adjusted gross incomes under $20,000 which is 40 percent of our population, because of a number of changes that have
occurred since 1986, pay 7 percent of the total amount of income taxes that are sent to the treasury.
SPEAKER WITHEM: One minute.
SENATOR MAURSTAD: Now as I indicated, I think this is a fair proposal. I think the committee amendment was a fair proposal. This is, in fact, using the work that they put forth that I appreciate and I'm sure other members appreciate, it goes to what the Governor originally proposed, it adds the other component the committee added. I believe it continues to be doable and hope that you will support the amendment.
SPEAKER WITHEM: Senator Brown.
SENATOR BROWN: Question.
SPEAKER WITHEM: Do I see five hands? I do. The question is, shall debate now cease? All those in favor of calling the question vote aye, opposed vote nay. Have all of you who wish to vote voted? Record, Mr. Clerk.
CLERK: 8 ayes, 14 nays to cease debate, Mr. President.
SPEAKER WITHEM: Debate does not cease. Senator Chambers.
SENATOR CHAMBERS: Mr. Speaker and members of the Legislature, I'm opposed to Senator Maurstad's amendment. I'm opposed to the committee amendment. I'm opposed to the bill, and I want to ask Senator Maurstad a question.
SPEAKER WITHEM: Senator Maurstad, will you respond?
SENATOR MAURSTAD: Yes, sir.
SENATOR CHAMBERS: Senator Maurstad, did you say something last session about if there are 30 millionaires who have not paid taxes you'd like to find them and shake their hand? Do-you remember making a statement similar to that?
SENATOR MAURSTAD: I may have made a statement that said that if we had millionaires that created the jobs and created the
economic growth that they did under the provisions of LB 775 and provided those benefits to the citizens of the state that I think they should be congratulated.
SENATOR CHAMBERS: You remember saying all of that?
SENATOR MAURSTAD: It might not have been all ...
SENATOR CHAMBERS: Okay.
SENATOR MAURSTAD: ... it might not have been reported as saying all that, but that's as I recall it.
SENATOR CHAMBERS: Okay., Now and even though they wouldn't be paying taxes so if there are ... you said that this amendment would meet the needs of everybody. If it means making the rich richer and keeping the poor poorer, then that meets everybody's needs because it keeps things like they are more or less, right? or is that not what you had in mind?
SENATOR MAURSTAD: No. The amendment doesn't make the poor poorer, Senator Chambers.
SENATOR CHAMBERS: Let me... okay, they get bought off for $40 over a 2-year period. You guarantee them $40 if they file a tax return. Is that correct, through this credit exemption?
SENATOR MAURSTAD: If they pay taxes, they'll receive the same 5.5 percent across-the-board rate reduction as all filers will.
SENATOR CHAMBERS: Can there be some people who have money taken out of their income but they don't make enough to really be required to pay a tax ultimately and they'd get it all back if they filed? Are there people like that?
SENATOR MAURSTAD: I don't know that I understand your question, Senator. Are you saying they have not paid any taxes?
SENATOR CHAMBERS: No.
SENATOR MAURSTAD: If they have not paid any taxes, they, of course, wouldn't receive any benefit.
SENATOR CHAMBERS: There's been money withheld, but at the end of the year they have not made enough so that they'd have to pay taxes when you consider their dependents and if they filed, they'd get all of the money back that they paid in. Do you think such a situation as that exists?
SENATOR MAURSTAD: I'm not a tax accountant but I would seem that it would.
SENATOR CHAMBERS: Okay. Well, let me ask you this question. Which sector of the economy in Nebraska accounts for the gross miscalculation of the Nebraska state psychic network forecasting board? Which sector of the economy is responsible for this gross miscalculation if you know?
SENATOR MAURSTAD: Is that a rhetorical question?
SENATOR CHAMBERS: No. I think it was a gross miscalculation to be as far off as they are. What sector of the economy...
SENATOR MAURSTAD: Those that are...
SENATOR CHAMBERS: ... performed so far beyond their expectation?
SENATOR MAURSTAD: They look ... okay, if you want a justification for the Forecasting Board, they are a number of economists that look at a number of variables to try to determine what is going to occur relative to receipts of state government.
SENATOR CHAMBERS: That's not what I'm asking because if you took all of the economists and laid them end to end, they couldn't reach a conclusion; and if they did, it would be wrong as this proves what we're dealing with now. And I'm not irritated with you. I'm asking about their gross miscalculation. Now if they can grossly miscalculate by so understating the amount that will come in, could they make a gross miscalculation the other way and overestimate the amount that is going to come in? We base our decisions on what they tell us by way of their estimate. Isn't that true?
SENATOR MAURSTAD: That's correct. In the two-year budget
period we do rely on them for guidance relative to the revenue projections that we have to base our expenditures on.
SENATOR CHAMBERS: Now this great overage which was so unexpected by everybody occurred ... this is the first year for that happening, isn't it? I don't mean it had never happened before but this is not a part of a trend. This is not one of several years. This is the first year where it happened like this. Is that true?
SENATOR MAURSTAD: No. This has happened the other years that I have served in the Legislature.
SENATOR CHAMBERS: Did it happen last year?
SENATOR MAURSTAD: Yes.
SENATOR CHAMBERS: Last year?
SENATOR MAURSTAD: Yeah, we have had an increase in revenues the period of time that I've served in the Legislature.
SPEAKER WITHEM: One minute.
SENATOR CHAMBERS: How far off were they last year?
SENATOR MAURSTAD: I don't have those numbers right in front of me. I could get those for you, Senator.
SENATOR CHAMBERS: Let us say that there are two years. Was last year's underestimate as large as it was this year? Was there as much overage generated last year as this year so that the surplus was this large? That's what I'm asking.
SENATOR MAURSTAD: No, I don't think ... once again...
SENATOR CHAMBERS: No, it wasn't.
SENATOR MAURSTAD: ...I don't have the numbers in front of me, but I would say, no.
SENATOR CHAMBERS: No, I'll tell you it was not. Are we wise to
formulate and base a permanent policy on one year's miscalculation by the Nebraska psychic forecasting board? Is that wise? I won't ask the question because it would take too long to answer. Members of the Legislature, this is strictly a political bill. I know it, you all know it, and people are trying to gouge as much as they can for those constituents they represent. I'm against the whole thing, kit and caboodle. And for Senator Maurstad's amendment... I think he is...
SPEAKER WITHEM: Senator Wehrbein. I'm sorry, Senator Chambers, your time is up. Senator Wehrbein.
SENATOR WEHRBEIN: Do you want to finish your statement? All right. Mr. President and members of the body, I will be fairly brief. I have been reluctant to concede at this point where we should go on the income tax. I'm willing to advance 401 at least one stage to see where it goes. I oppose the amendment at this point. I prefer the committee amendment at this point. I just... I know it's a little early to talk all the numbers. I expect that that will play out over the next few days. There will be a status sheet starting tomorrow so that perhaps it can be better understood how this will fit in and the concern about the out years I think is very real. In fact, I think we could actually have a very real concern about this next biennium because everything that we are talking about, including what we did yesterday and what we did today, income tax, all the other many factors from my viewpoint are not going to be sustainable out into the future for sure. And even in the short term, I think that everything will not be able to compete at dollars, at the full amounts that we're talking about. If there... I am also, though, willing to at least advance the income tax bill so that it is there on the table to be discussed. I'm not automatically against that. In fact, I would prefer to do an income tax cut if all things can be considered. I hope to make the case strongly tomorrow over the next few days of the need for spending some money on the prisons, reluctantly so, but it has to be at least brought out. I think we have to understand how all this fits in the package. And I'm willing to at least advance this bill, preferably with committee amendments at this time from my perspective, and have it sitting out there. But I think we do have lots of decisions to make over the next few days and I would urge the body to at least understand how this
fits in. As I said, the status sheet will be available tomorrow so that we can start seeing how all this fits into the puzzle.
SPEAKER WITHEM: Senator Vrtiska.
SENATOR VRTISKA: Thank you, Mr. Speaker, members of the body. I rise somewhat reluctantly to view my point of view for whatever it's worth. Obviously, I come from "Hicksville" as Senator Chambers said. One of the problems that I have seen as I've been up here and many of you I'm sure understand as well as I do And that's the issue of property tax. And we're not doing anything for property tax particularly in some areas of the state. I don't want to get caught up in the 806 issue again because we discussed that for 26 hours or whatever. But I do have to tell you that some of the answers to the issue of property taxes have been said to me, if your school wants to continue and they don't get enough money, the people can raise their taxes. What are those? Those are property taxes. That's the only way they can continue. And by the way, some of those are excellent schools. They're not schools that are so small they should be phased out but in fact that's what's happening. But I don't want to get into that issue. I want to get back to the issue of this particular proposal. I guess I find it very hard when I think back about three years ago when we even had a discussion about a special session to raise enough money to continue state government based on the fact revenues were down to that low a level. And now all of a sudden we got so much money we don't know how to deal with it. It looks to me like, just from my simple view of things, that we need to discuss what again is fair. I listened to Senator Landis a little bit ago talking about where is the fairness in this kind of a piece of ,legislation that, in fact, has given more money back to the very rich and not doing anything for the lower end of the scale. I've been talked to by people who are in support of this bill and I understand why they are and I don't want to take more money from the taxpayers than we need. But the question is, two years down the road how much they're going to need and where is the money going to be? Will there be, in fact, enough money to continue to provide $100 million or whatever the number comes up to be to the schools and to the other entities of government that we promised in order ... the state aid from from our tax dollars? It really bothers me to think that all of a sudden
we've gotten so rich that we don't know what to do with the money so we're trying to devise some method of giving it back or cutting back the amount of taxes that we're collecting because we've got too much money. And I accept the fact that we shouldn't collect more than we need, but the question continues to come back, what happens in two years if we have a downturn in the economy? You all recognize, I'm sure that most of you recognize that we've gone through some of the best years of farming in Nebraska we've had since I've been around. Crops were excellent, more than excellent, prices were good. I'm sure there's lots of sales out there that have collected lots of sales tax dollars, certainly a lot of farmers who probably hadn't paid any income tax in years ended up paying a considerable amount of income tax. That's where the money comes from. What happens if this all turns around and we have a bad year and we don't get the kind of return that we expect? Then are we going to be coming back up here saying we made a commitment that we were going to furnish this kind of money back to the local entities but we don't have it and so we're going to do one of two things. Either we're going to break our commitment or we're going to have to have a special session or go into session and raise taxes back again. You know, I sat on the board long enough and I found out one thing for certain. Lowering taxes is a wonderful thing to do, but nobody ever comes around and congratulates you when you lower taxes. But I'll guarantee you, I'll guarantee you that as soon as you raise taxes you'll hear from the taxpayers because I went through that process on the county board when we lowered taxes because we thought we had too much money, and then in three years we had to raise taxes and they came in by droves telling us what reckless spendthrifts you are because we raised taxes. They forgot that just a few years before that we had lowered their taxes considerably because of the fact we had excess money on hand. That's the kind of process I feel we're in right now. We're in a process of...
SPEAKER WITHEM: One minute.
SENATOR VRTISKA: ...sure, we got more money, but how long will it last? And isn't there a place where it can be put where it can be held and used when the time comes when in fact have a shortfall and we need the money? And I'm going to go back to
the issue again of 806 one more time, and that is if we've got that much money, it looks to me like we could do a little bit for some of these smaller schools that are going to suffer irreparable damage if we don't do something to help their cause as well as some of the larger schools. I think that has to be addressed in this whole process. If we got more money than we can use, we should, in fact, be willing to share some of that with some of those. And I'm talking about good schools. I'm not talking about schools that maybe should talk about consolidation. And by the way, consolidation in and of itself has never proven to save any money anyway. But the fact of it is some of these schools are necessary and providing a vital service and to now say that they don't get their fair share of the distribution of state money I think is ridiculous. Thank you.
SPEAKER WITHEM: Senator Will.
SENATOR WILL: Thank you, Mr. Speaker, members of the body. I rise again in support of the Maurstad amendment. I think we've arrived at an interesting situation when it comes to the issue of an income tax cut in that the original Governor's bill as I explained in my opening, LB 401, was a straight 5 to 5.5 percent rate reduction. The committee discussions resulted in the adoption of the committee amendment that is the underlying amendment that we're talking about right now that would decrease the rate reduction but at the same time implement a credit. And I think then Senator Maurstad came along with an amendment, that we're discussing now, that would reinstate the original proposed rate reduction and put the credit on top of that. And it's interesting because the argument has been on the one side that a rate reduction is the only way to go and that happens to be the side I come down on because it's the best way to address simply what has become a tax surplus. But then when the credit issue creeps in, then it becomes an issue of whether you're going to talk about redistributing the income tax burden. And as I stated earlier, I think that is a legitimate issue, but I don't think this is the time or place to do it. I think that's a .separate issue to be addressed. And I think what Senator Maurstad has done is come up with an amendment that is a combination of the two and then the question becomes sustainability, how much it will cost. So those of us that are
favoring a tax cut and trying to be accommodating about it are frankly being whipsawed at this point I believe as far as the methodology by which that will be accomplished. But I think at this point at least I would encourage the body to adopt Senator Maurstad's amendment to the committee amendments, to subsequently adopt that to the bill and advance the bill over. And has become our tradition this session, for better or worse, move the bill over to Select File and make it part of the mix and let's talk about it over there. With that, I would yield the remainder of my time to Senator Hillman.
SENATOR HILLMAN: Yes, Mr. Speaker, thank you, Senator Will. Let me, if I can, just while you were talking, Senator Chambers, I had a couple of thoughts on the questions you were asking and I'm going to give you somewhat of my personal opinion and some of it I will quote. And I don't know if Senator Chambers is here right now, but I will go ahead with talking about it anyway. In that looking at the Forecasting Board and having served on Appropriations Committee for about four budget years, I think over and over we have found the revenue Forecasting Board to be rather conservative, I'm going to say, in their approach. I don't, you know, the fact that they are going to under ... overestimate in the future I don't think is particularly going to happen. The one time that we came in, during my tenure, that we came in to have to do some budget adjustments of about $24 million because we were short of money was not because of the revenue projections. But that was because of the federal Medicaid match that changed drastically and we got a great reduction in Medicaid from federal dollars over what we had thought. The revenues have consistently gone up and not down. And one of the references that I would make is on page 2 of the budget book that you got and it talked about where did the surplus come from. I think it's interesting that you would know over the last 3 years that there was a 5.9 percent increase in revenues. So over that 3-year period we've increased 17.7 percent. And in that same 3-year period, 4.4 percent was the increase in expenditures or 3.1 percent over a 3-year period. Now that was a slower also growth.
SPEAKER WITHEM: One minute.
SENATOR HILLMAN: And the declining growth in our expenditures
has been in three major entitlement programs: Medicaid, public assistance, and special ed. So I think we need to look at this that revenue has continued to grow, continued to grow year after year. When we got into trouble was when our expenditures were growing faster than what our revenue increases were. And now is the time I think if you look at some of those figures and realize that over a 3-year period our revenues increased 17.7 percent and that the projections are that they will maintain that growth not in 3 or 5 years out, but in the next 2 that we were looking at and the trends that are there, it doesn't show any decreases. There is no real good information that would show us that there would be decreases and there would only be a continued somewhat increase. Will it be clear up to, the 5.9 or that we really don't know.
SPEAKER WITHEM: Time, time, Senator.
SENATOR HILLMAN: Thank you, Senator Will.
SPEAKER WITHEM: Senator Wesely.
SENATOR WESELY: Thank you, Mr. Speaker, members of the Legislature. I've listened with great intent with the debate that's been going on the floor. I wasn't sure how I was going to vote on this amendment and I've tried to give full attention to what's been discussed. I think the arguments are overwhelmingly against the adoption of this amendment. I think Senator Wickersham, Senator Landis, Senator Beutler, and others, Senator Vrtiska have made excellent arguments about why a permanent deeper cut on our income tax doesn't make sense. That those who are the wealthiest among us that have the highest income would receive the highest break doesn't make sense in light of a number of issues. First off, the question I think all of us should be asking ourselves is we've been sent here by our districts to represent them. What do the people want? If you look at the election in 1996, the answer to that question and come back, they want income tax cuts or was the answer that they want property tax cuts? If you just think back a few months, you'll remember that the whole issue in the U.S. Senate campaign seemed to hinge on the question of property tax relief. If you look at those of us who got involved in the initiatives that would have had a constitutional amendment dealing with
reductions in property taxes, those of us who opposed it promised property tax relief. We said we'd be back here this session to deal with that problem. The income tax issue was not at the center of the 1996 elections. It was the property tax issue, and that ought to be the center of our debate in the next few weeks as we end this session. It is the property tax issue that demands the highest attention of this Legislature and is the promise we have to keep. The promises that are being made on the income tax aren't being made to the people of the state of Nebraska. They're being made to the chambers of commerce, they're being made to the Omaha World-Herald which seems to have a drumbeat on this issue with a daily article and a daily editorial talking about the income tax and how we have to deal with that problem when, in fact, if you go to the public, if you go to the general public, what you'll hear is a totally different story. The income tax appeals to those who have the most, the property tax appeals to those who have the least and the broadest base of interest in the state of Nebraska. And what we ought to be doing is reserving back resources that are limited. We don't have a pot of gold so great that we can end up providing the significant property tax relief demanded by the public that we ought to be listening to with the amount that we have and to do the sort of significant permanent income tax cut that's being talked about here and still deal with the broad set of other issues that are yet to be addressed with the budget which is about to come forward tomorrow. The promises we made, and I was one of those that said let's not do a constitutional amendment, let us have a chance in the Legislature to deal with property taxes. I feel an obligation back to the people to now try to make sure that that happens. So people want lower property taxes, the public wants lower property taxes, they also want something else. They don't want us to cripple our schools . They want decent public schools in this state. They don't want just LB 1114 passed, enacted, and no effort by the state to come in and make sure our schools maintain a quality education. And that comes back to LB 806, it comes back to the budget, it comes back to a fundamental responsibility of this Legislature in our constitution to provide for the public education of our students, of our children in this state. And so not only do they want property tax relief but they want the magical ability for us to do that without losing quality education. And to do that means the state has to step in and provide some assistance.
That's what I think we cannot lose sight of. And it is a well-educated populace that is one of our competitive advantages, the very people that are pushing the income tax cut are also the ones that benefit by having a strong education system. Our businesses, our economy is based on the fact that Nebraskans graduate, most of our children end up with educations that are good quality educations, they're graduates of our schools, they're literate, they're well educated, they're well motivated, they're hard workers, that's a Nebraskan. And we lose that if we don't have good schools in this state, and that means that this Legislature has to step in now, as we limit our property taxes, to not make sure that they are not harmed so severely by those reduced revenues and lose the quality education that has made this a great state. Our graduates are always near the top in scholastic achievement.
SPEAKER WITHEM: One minute.
SENATOR WESELY: So in my view as you look through the issue, it's the public that wants property tax relief. It's the public that I think is right in demanding quality education, and we can't end up, I think, with a deeper income tax cut on a permanent basis and accomplish that goal. In addition, as Chair of the Health and Human Services Committee, let me tell you that it's not just a strong economy that provides the resources to have this discussion today. It's reduced spending in Medicaid, it's reduced spending in welfare. We have made cuts, we have made managed care save Us money. We have reduced spending on mental health. We have reduced spending in the ADC program and I think we can't lose sight of the fact that we have an obligation back to the poorest of our citizens who have the hardest of times to try and make sure that they have a decent life. That means having adequate health care, that means having adequate mental health services, that means having an adequate welfare system that meets the poorest needs in our state, and that means having resources to do it. So I think we have to have a broad perspective here...
SPEAKER WITHEM: Time, Senator.
SENATOR WESELY: ... and I oppose the Maurstad amendment.
SPEAKER WITHEM: I would like to pause one second and introduce some guest of Senator Dierks from Holt High School. There are 37 eighth graders from O'Neill along with their teachers. Please recognize our guests. Senator Wickersham.
SENATOR WICKERSHAM: Thank you, Mr. President. Some of this debate is really taking some strange turns I think. There are some rankings of state's taxing systems if you want to review those. I think if you reviewed the one that I have looked at most recently called "A Statistical Review of the 50 States" by Kathleen Morgan and Scott Morgan you would see that on a per capita basis that Nebraska ranks 25th in its sales tax burden; it ranks 16th in its property tax burden; and 27th in its income tax burden. In other words, our income tax burden is lower than 26 other states. Our property tax burden, on the other hand, is only lower than 15 other states; and here we are talking about an income tax cut. Oh, well, that's the way it is I guess. And maybe 1114 will realize all the savings we need and maybe everything is going to be okay. Senator Maurstad has been putting around a copy of an editorial from the Omaha World-Herald. There's another recent editorial from the Omaha World-Herald. I'm not going to clutter up your desk with a piece of paper, but the headline on that editorial is "State's Prosperity Could Wane. Nebraska Needs to be Prepared." I think those are absolutely prophetic words and I do think we need to be prepared and in part we need to be prepared by rejecting the Maurstad amendment. Before you vote on this amendment, be sure that you review the budget status information that we have given you. The Maurstad amendment under current budget predictions, current spending that we have on Select and General File will dig a $258 million hole in the next biennium. That is a taller hole than I want to try to climb the sides of to look out. It isn't prudent. It isn't acceptable, and I hope that we reject it. And I would yield the rest of my time to Senator Landis.
SPEAKER WITHEM: Senator Landis.
SENATOR LANDIS: Thank you, Mr. Speaker, members of the Legislature. You've heard two different variations on a statistical fact. Dave Maurstad in his last speech said that those who have incomes of $100,000 or more pay 40 percent of the taxes. You heard me say that it was 32 percent or less. I'll
tell you what. You're seeing now a page come around. It's a page from 1995 annual report Department of Revenue. Take a look at the last column. All you do is the addition. It's the best data that I've got. If there's a better piece of data, I haven't seen it. My source for saying that is the Department of Revenue annual report in a table that I'm providing to you. There's an update from that but I get that from the Legislative Research ... Legislative Fiscal Office. That's my source for saying that 40 percent of the benefits go to people who pay 32 percent of the taxes. Secondly, Senator Wehrbein, Senator Vrtiska were spot on. One of the problems here is that this is a permanent tax cut in the face of problematic times, particularly if we really want to get to the bottom of property tax relief. You can't get their to property tax relief and make permanent, permanent income tax cuts. Third problem is the one that Senator Hillman raised. I know she's a supporter, but she pointed out where some of the surplus comes from. It comes from capping Medicaid. It comes from capping special education. It comes from reducing public administration expenses over time. Those aren't the people who make more than a hundred thousand bucks. Those are the people that make, what, 10,000, 15,000, 30,000, 50,000 bucks. They put money into this pot by taking fewer services. As a matter of fact, Dave Maurstad has written a great letter to his constituents identifying where some of that benefits, and he identifies Medicaid and he identifies a lower health insurance premium to our state employees as to where some of this surplus comes from.
SPEAKER WITHEM: One minute.
SENATOR LANDIS: Those are people who are contributing to this pot of money and they sure don't get a fair shake of it under the Maurstad amendment. I urge you to reject the Maurstad amendment.
SPEAKER WITHEM: Senator Landis, yours is the next light. Do I see five hands? I do. The question is shall debate cease. All those in favor of ceasing debate vote aye, opposed vote nay. Members, we are voting on the question of whether debate should cease. Have all of you who wish to vote voted? Record, Mr. Clerk.
ASSISTANT CLERK: 26 ayes, 2 nays to cease debate, Mr. President.
SPEAKER WITHEM: Debate is ceased. Senator Maurstad, to close.
SENATOR MAURSTAD: Thank you, Mr. Speaker. I think that we all recognize that the discussion on this amendment went about as one would expect with the arguments on one side that this is, in fact, taking advantage of the poor and the rich would benefit. Now I for one regret that it turned into that and I want to make one comment on that and then move on. I didn't indicate, Senator Landis, I didn't talk about those earning over $100,000. My statistic was the top 6 percent pay 40 percent for small clarification. This all deals and talks about whether or not the taxpayers of this state should, in fact, be able to use their hard-earned money for the things that are going to help their families. This is not about property tax relief. We're going to address property tax relief. We have two bills both on Select File that are going to address property tax relief. For those that are interested, I have passed around the General Fund state aid that indicates that property tax relief, in fact, has been a major commitment of the state Legislature for a number of years and it's going to continue to do so. This does not compete with property tax relief. There was some discussion as to whether or not the General Fund revenue forecasts are accurate, what the trends have been. I think you'll see from the two handouts, page 13 and page 15 from the budget book, General Fund revenues have been increasing. They continue to increase. They have a historical average, an individual income tax of 7.3 percent. We're looking at using less than 5 percent as the estimates here. This is not, you know, a big wild- haired proposal. It is $50 million more than the original committee amendment. Why $50 million? April Forecasting Board increased our expectations $46 million. This is in essence that difference. If this was a good idea before they met in April, I think it's a good idea now. If there are flaws in fact with the Maurstad amendment, with the 5.5 percent reduction, rate reduction, then you certainly can't support the committee amendments because it's the same thing only a smaller percentage. I would ask that you make this a part of the committee amendment and then a part of the bill and advance this over to Select File so we can continue the discussion of what
the appropriate amount ought to be. Whether it's permanent or not is certainly a legitimate argument, but let's try to refrain from the aspect of the class warfare aspect that we want to dwell upon. Property taxes, as Governor Nelson has indicated and I agree, how do you affect that most? You spend less at the local level. What about at the state level? I'm convinced we put more money in the treasury we will find a way to spend it. So we'll talk sometime during the next couple of weeks about taking things off the table, being able not to have it available to spend. The ultimate taking it off the table is not putting it in the treasury to begin with. This is leaving the money in the pockets of our taxpayers, not taking it away from them. The amendment would maintain the $40 million in the cash reserve so that $58 million plus the April projection of another 26 depending upon what happens the next two months would stay in the General Fund to help pay for a number of the expenditures that are in the budget. We're at about 3.8 percent average increase spending in the budget right now. With the items that are on the books that have been alluded to, we're at about 9 percent. Are we going to put a budget before the Governor with a 9 percent increase this year? If we do, it will only be because of one reason.
SPEAKER WITHEM: One minute.
SENATOR MAURSTAD: Because the funds are there and that's part of the underlying principle behind this. This is fair. The across-theboard permanent tax cut is fair because it is going to provide that rate reduction across all the rates. Those that paid in will receive part of the benefit. The income tax credit I believe addresses some of Senator Landis'. It must address Senator Landis' concerns or he wouldn't have included it and voted for it in the committee amendment. So if the committee amendment is a good idea, the Maurstad amendment I would put forward to you is a better idea. It includes the Governor's proposal, includes the committee's main concern relative to the income tax credit and I'd ask for your support of the amendment.
SPEAKER WITHEM: Senator Will has requested a call of the house and concluding the call of the house a roll call vote. All members please vote on the question of whether the house should go under call. All those in favor vote aye, opposed vote no.
Record, Mr. Clerk.
CLERK: 21 ayes, 0 nays to place the house under call.
SPEAKER WITHEM: The house is under call. The roll call request had not been made and the request had not been made for any specific order. Senator Landis has requested that it be in reverse order. Members, please return to the floor, record your presence. Mr. Clerk, please call the roll in reverse order.
CLERK: (Roll call vote taken. See page 1878 of the Legislative Journal.) I can't hear, I'm sorry.
SPEAKER WITHEM: Members, we're having difficulty hearing up here so please try to keep your conversations to a bare, bare minimum.
CLERK: (Resumes roll call vote.) 25 ayes, 19 nays, Mr. President, on the amendment.
SPEAKER WITHEM: The amendment is adopted. The call is raised. Mr. Clerk, next item.
CLERK: Mr. President, next amendment I have to the committee amendments is by Senator Robak, AM1727. (See page 1694 of the Legislative Journal.)
SPEAKER WITHEM: Senator Robak.
SENATOR ROBAK: Thank you, Mr. Speaker, members of the body. This amendment to the standing committee amendments addB sections were originally LB 296, and I believe that is designated as a priority bill but it did not appear so that it will have time on the agenda. And that's the reason that I attached it to this amendment. Well, somebody might be listening here. This amendment would exempt federal government, civilian, and military pensions from state income for state income tax purposes using the same formula that allows Social Security benefits to be excluded from the federal adjusted gross income. All persons who receive Social Security benefits are allowed some exemption. The Pages are going to be handing out some forms for you to follow at this time. I have three
different sets of amendments, handouts here. All persons who receive Social Security benefits are allowed some exemption on the federal adjusted gross income based upon their earnings and income. This concept has been heard by the Revenue Committee on more than one occasion. My office has received many calls and letters from citizens as well as other senators and staff so obviously this amendment has statewide interest at this time. Thirty-eight states make some allowance for federal pensions are a senior age status. Eleven states exempt the total amount of civil service annuities including Kansas to our south. Under this amendment, federal retirees would not be able to file for this exemption until the year he or she is 65 years of age on the first day of the calendar year. I think it's important to point out that these folks had no choice when their retirement funds were invested. That is they had no choice but to go under this annuity plan or Social Security. The federal programs were in lieu of Social Security. And now on fixed incomes and ever rising prices, they cannot take an exemption or even a portion ,of their income attributed to federal employment. I wish you'd all take a look at this handout that shows the 1996 tax year treatment of federal annuities by other states. Fortyseven states are listed ranging from no personal income tax, total exemption of federal civil service pensions, to small exemptions with qualifying rules. Sometimes I think that winter is not the only reason many of our retired Nebraskans establish permanent residency in other states. The latest information provided to me indicates an average monthly pension income for federal retirees, Nebraska federal retirees is, hmm, is that 14,000, 1,400? One thousand four hundred fifty dollars or about $17,000 to $18,000 a year. This might not sound like much, but add a bit of investment income and subtract just personal exemptions and the standard deduction as most have paid off their homes leaving no itemized deduction. You end up with folks owing a great portion for federal and state income taxes and not much left over for living expenses. We must also remember that these folks eventually are on full, retirement so whatever tax obligation they have must come from the same yearly pension amount as there's no employer withholding a tax obligation with each paycheck. I have another handout here. I would ask you to think about the retirees in your district and pass this amendment to give federal retirees the same break as those on Social Security.
SPEAKER WITHEM: Senator Robak, I hate to interrupt you. I'm going to suggest that that is the building. There was evidently a tornado sighted near Lincoln, that's why the sirens were going. What you're now hearing is the building...
SENATOR ROBAK: I thought I was having a flyover for my amendment.
SPEAKER WITHEM: No, I'm sorry that's not it. So I'd suggest that we stand at ease until we... just stand at ease here until we find out what the situation is if we could.
SPEAKER WITHEM: Senator Robak and Senator Wickersham, would you please come to the desk please and Senator Will. Senator Will.
SENATOR WILL: Mr. Speaker, I move we adjourn until 9:00 a.m. Thursday, May 8.
SPEAKER WITHEM: Mr. Clerk, any items for the record?
CLERK: Mr. President, I do. Senator Beutler has an amendment to (LB) 401 to be printed, and Senator Landis to LB 389; Senator Hillman to (LB) 389; Senator Crosby has a motion to reconsider a vote on 1831 to LR 7. That's all that I have Mr. President. (See pages 1878-1880 of the Legislative Journal.)
SPEAKER WITHEM: All those in favor of adjournment say aye. Opposed. We are adjourned. We did get a message from the DAS Director that we should follow the appropriate plans when there is a storm warning. We are not in session right now, Senator Chambers, otherwise I'd be happy to recite those for you.