OpenSky analysis highlights need for review of tax changes

OpenSky analysis highlights need for review of tax changes

LINCOLN – The fiscal impact of many tax changes passed over the last decade could be reducing revenue by as much as $900 million a year and this highlights the need to review tax incentives, exemptions and other revenue measures after they become law.

That’s a key finding from a new analysis by OpenSky Policy Institute.

That the past decade’s tax changes are contributing to the state’s current $1.2 billion revenue shortfall is even more reason to review past changes to the tax code, said Renee Fry, OpenSky’s executive director.

“Changes to the tax code can reduce revenue just like state spending,” Fry said. “But unlike state spending, tax changes aren’t regularly reviewed and thus can become costly, unnoticed drains on state revenue that is needed to support schools, roads and other services that are vital to our economy.”

The Legislative Fiscal Office last fall released a list of tax changes passed over the last decade that reduced General Fund Revenue by $755 million in this year alone. OpenSky examined these and other tax changes made over the past decade and found they may have a nearly $900 million annual impact on state General Fund revenue. Tax changes that appear to be exceeding estimates made on their original fiscal notes include:

• The Nebraska Advantage Act, which a November report found reduced revenue by $108 million in 2013 after being estimated to cost between $24 million to $60 million annually;
• A sales tax exemption for youth development programs, which was initially estimated to have “minimal fiscal impact” and but was more recently estimated to have reduced state revenue by $3 million in FY 16; and
• An exemption on the purchase of agricultural machinery repair parts and service, which was originally estimated to reduce state revenue by $9.7 million annually but was more recently estimated to have reduced revenue by $15.5 million in FY 16.

Some revenue changes appear to be having less fiscal impact than originally estimated but those are more than offset by measures that appear to costing more than initial estimates, Fry said.

A review of tax changes could help lawmakers determine if tax cuts, exemptions and other revenue changes are working for the state and allow legislators to determine of changes need to be made to such policies, Fry said.

“Lawmakers work hard to monitor state spending to ensure tax dollars work for the benefit of the state,” Fry said. “Applying those same principles to our tax changes could help our state avoid large budget shortfalls and better ensure the state invests its resources in the best way possible.”

Download a printable PDF of this analysis.