Nebraska senators debate eliminating inheritance tax

The measure (LB1067) from Sen. Rob Clements would join the Cornhusker state with the more than 40 others that have already eliminated what the Elmwood legislator referred to as the “tax on death” paid by roughly 12,000 Nebraskans each year.

Currently, direct relatives like children or siblings pay a 1% tax on inherited property and financial assets over $40,000, while distant relatives pay 11% and those who aren’t related pay 15% of any inheritance they receive.

Clements said that spurs some Nebraskans to flee the state to areas where those taxes won’t be assessed and collected.

“Allowing people to transfer more of their assets to family and loved ones will keep them from leaving Nebraska upon retirement,” Clements said, while also allowing families to build wealth and spur economic growth.

But a pair of provisions within Clements’ bill intended to offset the estimated $65 million in revenue counties would lose once the inheritance tax is phased out — something opponents of the bill said would likely result in property tax hikes — raised concerns during the early stages of the debate.

Clements’ plan would reinstitute the State Prisoner Reimbursement program that ended in 2009, providing $35 a day or more — an amendment from the Revenue Committee would raise that to $100 per day — for state inmates housed in county jails.

Another piece of Clements’ plan would give county boards greater flexibility in how they use lodging taxes. State law currently restricts lodging taxes to tourism and visitors promotion; Clements would allow those funds to be tapped for road and bridge projects.

The attempt to reduce the sting counties feel went too far for senators from both urban and rural areas, however.

Lincoln Sen. Danielle Conrad, who said she supported the Legislature taking a look at the inheritance tax in order to ensure it wasn’t overly burdensome on middle class and farm families in Nebraska, said the bill tried to do too much at one time.

Conrad said she understood why Clements and the Revenue Committee sought to combine those issues, which adjust the dials for how much funding counties have to work with, but she said it’s too much at once.

She filed a motion to divide the question, which asks lawmakers to break the bill’s pieces down to individual parts for consideration. Her motion was taken under advisement on Tuesday, giving the Clerk of the Legislature and bill drafters time to develop language that will come before senators.

“I do think there is a significant track record in the legislative history that shows these are separate and distinct issues and should be debated and deliberated as such,” she said.

Sen. Mike Jacobson of North Platte said that while he favored eliminating the inheritance tax, he was nervous about allowing county boards to use funds intended to spur tourism to supplement their general budget.

“I will vote against the bill if we can’t separate the tourism dollars,” Jacobson said, saying the plan before the Legislature created a “slush fund” for county boards.

Jacobson also said counties would be taking a risk housing prisoners for the state because the reimbursement would only be available if the Legislature appropriated that money.

If there was no state appropriation available, the onus would fall on property taxpayers to pay for those services, he added.

“There’s one thing I hate more than inheritance tax and that’s property tax,” Jacobson said. 

Lincoln Sen. Jane Raybould, who formerly served on the Lancaster County Board of Commissioners, called Clements’ plan “insufficient.”

“It needs to go back to the drawing board to find better and more substantial and permanent ways to supplement this loss of revenue to cities and the counties,” Raybould said.

A motion filed but not taken up Tuesday by Omaha Sen. Machaela Cavanaugh would return LB1067 to the Revenue Committee.

Sen. Brad von Gillern of Elkhorn said he supported Clements’ plan, calling the inheritance tax “a simple redistribution of wealth.” 

“Friends, that is pure socialism,” he said. “If your goal is to take from the rich and give to the poor, we’ve already read that story.”

The Legislature debated LB1067 for less than an hour on Tuesday, Day 30 of the 60-day legislative session.

Lawmakers will reconvene for floor debate on Wednesday morning, but LB1067 was not on the agenda posted to the Legislature’s website Tuesday evening.