During our campaigns for the Legislature, we all ran on a platform of lowering taxes. Once elected to the Legislature, however, we quickly learned that there just isn’t a lot of fat to cut and that sooner or later, any income tax cut would result in a cut to services we know Nebraskans need, or a shifting of responsibility on to the local level in the form of increased property taxes.
As such, any real talk about income tax cuts should be done in conjunction with a discussion about what services will need to be reduced or what other taxes will need to be raised. Doing otherwise is not fair to Nebraska residents, who ultimately will pay for the tax cuts one way or another.
Unfortunately, such a discussion is not being held in relation to LB 461 – a tax cut package that will soon be debated by the Nebraska Legislature. LB 461 is largely an income tax cut proposal that also includes some measures purported to reduce property taxes. LB 461 offers no plan for what services will need to be reduced to fund the bill, which will largely benefit high-income residents and lead to actual tax increases for some other taxpayers. This means it will be up to future lawmakers to figure out how to cover the revenue losses created by LB 461.
Aside from offering no insight into what Nebraskans will have to give up in exchange for LB 461’s tax changes, there could hardly be a worse time to be discussing state tax cuts.
Lawmakers currently face a major budget shortfall — one the U.S. Government Accountability Office found could be the start of a 40-plus year run of budget gaps that states will face as health care and pension costs related to our aging population increase.
And unlike the budget gaps we faced during our tenures, Nebraska’s current budget shortfall does not come on the heels of a national recession. This suggests that our revenue shortage could be rooted in more structural issues, including annual revenue losses that occur and grow each year thanks to previous tax changes passed by the Legislature.
Having served during tough budget times, we can attest to the difficult decisions that we had to make in order to meet our constitutional requirement to balance the budget.
Amid the shortfall that resulted from the recession of the early 2000s, lawmakers convened multiple special sessions, enacted budget cuts, rolled back prior tax cuts and increased other taxes to fill the budget gap.
We had to call a special session and make more painful cuts to key services following the Great Recession, but we also benefitted from in an influx of federal stimulus dollars. These funds helped us avoid even deeper cuts to schools, health programs, public safety and other services.
There will be no federal stimulus dollars to help our lawmakers this time. In fact, the state is more likely to experience reductions in federal support should the federal government follow through on discussions to cut taxes and spending. This would make maintaining investments in critical services even more difficult.
It’s also important to note that budget cuts have consequences. The effects of some of the budget cuts we had to make continue to linger. In spite of efforts to fix corrections issues that stemmed from budget cuts, our prisons remain beset with major problems including unrest among inmates and attacks on prison staffers. And as state aid to K-12 education and other local services was cut, many local governments had to rely more heavily on property taxes for revenue. The budget cuts senators are making to balance this year’s budget could lead to even more long-term consequences for important public services that Nebraskans need.
Now is simply not a good time for the state to be considering the tax changes proposed in LB 461. Nebraskans haven’t been given a clear picture of the services that would be cut to fund the tax reductions, and our lawmakers already have their hands full as they try to close a large budget gap. Enacting LB 461 in light of our current budget crisis could exacerbate the magnitude of the challenges we already face as a state.
- The authors are John Harms, Kathy Campbell and Don Pederson. John Harms is a former lawmaker from District 48 in Scottsbluff. Kathy Campbell is a former lawmaker from District 25 in Lincoln. Don Pederson, now of Lincoln, is a former lawmaker from District 42 in North Platte. Harms and Pederson both served on the Legislature’s Appropriations Committee. Harms and Campbell are members of the OpenSky Policy Institute Legislative Alumni Advisory Committee and Board of Directors.