LINCOLN — State lawmakers adjourned floor debate for the day Tuesday without voting on a bill to phase out Nebraska’s inheritance tax, but it was clear that more work is needed on the measure.
State Sen. Rob Clements of Elmwood, who has made eliminating the “death tax” a top priority during his legislative career, acknowledged that some changes may be needed in his Legislative Bill 1067 before it can be passed.
One cosponsor of the measure, North Platte Sen. Mike Jacobson, said he couldn’t ultimately support the bill unless it includes ways to replace the funding lost by Nebraska counties from repeal of the tax.
Foes say it will raise property taxes
Jacobson, as well as the Nebraska Association of County Officials, argue that repealing the inheritance tax — which provides up to $100 million a year in funding for the state’s counties — would result in a property tax increase.
“There’s one thing I hate more than inheritance tax, and that’s property tax,” Jacobson said.
Jon Cannon, the executive director of NACO, has estimated that property taxes levied by the counties would have to rise by 11% to offset the funds lost.
Clements said he has been seeking replacement revenue for the counties but also has faith that county commissioners can make needed adjustments during the five-year phase-out of the inheritance tax called for in his bill.
LB 1067, as currently written, contains two new funding sources for counties, allowing them to access lodging tax revenue now used to promote and expand tourism sites, and reimbursing counties for housing state inmates in their jails.
An amendment pending on the bill would limit the use of the tourism funds to 50% of what a county collects and would increase the jail reimbursement from $35 a day to $100 a day.
But Jacobson and others questioned whether that was enough to avoid a rise in property taxes. And Jacobson said the tourism funds should be used for tourism only.
Clements said after the debate that he might support using revenue from the documentary stamp tax, which is charged on the purchase of real estate, to help replace the revenue lost.
‘Arbitrary and excessive’ tax
During floor debate Tuesday morning, the senator said Nebraska is an outlier in charging an inheritance tax, which he called “arbitrary and excessive” and tough on grieving families and friends.
Nebraska is one of only six states with an inheritance tax, and one of those, Iowa, will phase out its “death tax” at the end of the year.
The bill has 24 cosponsors among the 49 state senators, but it faces some legislative hurdles: a motion to divide the question into two parts from Lincoln Sen. Danielle Conrad and motions to kill the bill or recommit it to a committee from Omaha Sen. Machaela Cavanaugh.
Clements said that repealing the inheritance tax would be a step toward improving Nebraska’s tax system and that ending it would remove a reason for those nearing retirement to move away, so their heirs don’t have to pay the tax.