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Think tank says budget surplus will benefit state's wealthiest
McCOOK, Neb. – Even though Nebraska has a $380 million budget surplus, the Legislature doesn’t seem interested in appropriating those dollars in this budget cycle but would rather see the surplus saved to afford income tax cuts that were approved last year.
That is the message that Dr. Rebecca Firestone, Executive Director of OpenSky Policy Institute, told members and guests of the McCook Rotary Club during their noon meeting on Tuesday.
OpenSky is a non-profit, non-partisan policy research organization based out of Lincoln. Their goal is to make state tax and budget policies understandable for Nebraska’s citizens. They analyze different policy proposals in the legislature to make sense of their potential impact.
Having a surplus is “something of an anomaly” for the Legislature, Firestone said, as lawmakers are more accustomed to dealing with budget deficits than surpluses. She went on to explain the surplus is the result of the massive federal stimulus directed into state and local economies from the Cares Act under the Trump administration and the American Rescue Plan under the Biden administration. Collectively, approximately $24 billion has been injected into Nebraska’s economy over the past three years.
Nebraska chose to invest some of that surplus into projects like the Perkins County Canal and building a new state prison. Lawmakers also passed an income tax cut package that Firestone claims will predominately go to Nebraska’s wealthiest citizens. “Just as those tax cuts are taking affect, the State is going to be collecting less revenue,” Firestone said. “By the time those tax cuts really take effect in 2027, we have estimated about a billion-dollar reduction in state revenues.”
To offset the reduction in taxes collected, the State plans to hold on to budget surpluses and trim budgets. The goal is to cut spending by three percent ($160 million) this year and six percent ($320 million) next year.
While income tax cuts are welcomed by citizens, most are primarily concerned about substantial increases in their property tax bills. Firestone said Nebraska ranks very low in the State’s support of local government services (school districts, cities, and counties), which is the major cause of increasing property tax requests.
To address the problem, last year’s Legislature passed several mechanisms for property tax relief including a property tax credit and homestead exemptions, but Gov. Pillen has expressed his desire to see even more property tax relief. “The question is – where does that money come from,” Firestone said. She explained that the State operates on sales and income taxes. Since the State has already cut income taxes, the only place left to make up the revenues is sales tax.
While no legislation had been introduced at the time of Firestone’s presentation, she speculated that there would be a proposal to increase the State sales tax rate and to broaden the goods and services that sales tax could be collected on. That is a concern, according to Firestone, as sales tax is considered a regressive tax that disproportionately burdens low-income citizens.
Other solutions that have been floated include caps on local spending, and removing property-tax levying authority from fire districts and Natural Resource Districts.
Ultimately, Firestone said the proposals represent a tax shift – from property taxes to sales tax. This is of concern to OpenSky because of the recessive nature of sales tax. She said that if all different types of taxes collected in Nebraska are considered, the top one percent of households (making more than $557 thousand a year) are paying an effective tax rate of 7.2 percent. The lowest income households (making less than $30,000 per year) pay 11.2 percent. Those figures are before the income tax cuts passed last year are considered.
More information is available at www.openskypolicy.org.