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Election Brings Major Change to Nebraska Legislature

by Jim Vokal

Before any votes were cast in the legislative election, term limits and primaries had sent a dozen members of the Nebraska Legislature headed for retirement. Now, five more defeated incumbents appear to be joining these exiting members.

What does the turnover in the 2016 election mean for the possibility of tax reform in Nebraska?

It’s hard to count legislative votes so quickly. In Nebraska, senators’ party registrations usually mean less than their individual philosophies and legislative priorities.

Before any tax reform legislation will be debated by these senators, however, it generally has to be approved by the Unicameral’s Revenue Committee. In the past, the majority of these eight senators have been an impediment to tax reform.

But a major change is in store for the committee’s makeup.

Sen. Jim Scheer, reelected without opposition Tuesday, is mounting a campaign for Speaker of the Legislature. If his bid is successful, it will take him off the committee and in a position to guide legislation in a much greater capacity. The current Revenue Committee chairman, Sen. Mike Gloor and Sen. Kate Sullivan, who at times sponsored general fund tax increases, will be leaving due to term limits.

Perhaps most remarkably, voters have dismissed Sandhills-region Sen. Al Davis from the tax-levying committee in his election loss to Tom Brewer. Davis was one of Revenue’s most vocal opponents of lower income taxes. In 2015, he enlisted groups that support higher taxes, like the OpenSky Policy Institute and the Center for Rural Affairs, when he introduced and championed LB280, a major income tax rate increase on all Nebraskans.

The bill would have enabled school districts to collect an income surtax of up to nearly 30 percent. That would have given Nebraska’s lower-middle income taxpayers and small businesses about as high of an income tax as New York imposes on millionaires on Wall Street.

Davis sold the bill as meaningful property tax relief for his rural district, but LB280 was in fact a large, immediate hike on all taxpayers while only modestly reducing education tax levies over a period of years.

Clearly the voters didn’t agree that Sen. Davis’ ideas were as generous or novel as the high-tax lobby thought.

With more reform-minded senators joining the Legislature in 2017—some who explicitly ran on comprehensive reform of property and income tax—there is a new opportunity for the committee to turn the page on the high-tax attitudes and policies that create self-imposed challenges to Nebraska’s economic growth.

Sen. Jim Smith, a current committee member and the Legislature’s leading proponent of a combined income and property tax reform effort, is seeking the chairmanship of the Revenue Committee, and is prepared to introduce a plan for revenue-neutral tax reform.

This change in leadership would give members of the Nebraska Legislature everything they’d need to begin to right-size and rebalance the state’s tax structure in a way that actually improves the state’s tax system for working, investing, and attracting entrepreneurs and workforce talent.

There is the potential for the Legislature’s committee system to no longer be a hindrance to free market policies getting to the floor, the clear majority of legislators have been elected with a mandate for reform, and leading national researchers have provided economically sound, step-by-step instructions for responsible tax reform.

Voters have paved the way. Now we will see if the grip of the high-tax lobby has subsided enough for lawmakers to find the will for reform.

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By the way, President-elect Donald Trump will also have a major impact on the potential for policy changes in the Nebraska Legislature over the next four years. Nebraska’s relationship with the federal government may be poised to change in a significant way on topics including health care, education, natural resources and energy, and the fiscal policies that relate to these issues.

There is a definite opening for greater legislative study of fiscal federalism now that an administration and congress is coming into place which may be open to authorizing states to take more initiative in how their federal tax dollars are allocated for some of the largest parts of the state budget.