Just how big was the impact of 2020’s income tax filing deadline extension on state revenue projections?
With the extension, which resulted in $280 million of income tax revenue being collected in FY 21 instead of FY 20, Nebraska is projected to experience 10.5% revenue growth for FY 21 over FY 20. This artificially inflated revenue growth is enough to trigger a large increase in the LB 1107 refundable income tax credit as the credit is projected to grow from $125 million this year to $313 million next year.
Had the extension not occurred, Nebraska would have been projected to experience negative revenue growth (-0.2%) in FY 21 and the LB 1107 tax credit would have stayed at $125 million. (See the table below.[1])
Lawmakers passed LB 1107 last year with the understanding that the refundable income tax credit it created would increase in its initial years only if our economy grows, meaning the artificial revenue growth created by the filing deadline extension subverts one of the fiscal guardrails that lawmakers agreed upon when they passed the bill.
Looking ahead, state revenues are projected to remain relatively flat in large part because of the increased cost of the credit. This could lead to a situation where lawmakers are forced to pay for the LB 1107 credit by reducing funding for services like schools, roads and health care, which are essential to our state and its economy.
