Delaying LB 738’s fiscal impact could contribute to future budget problems
Among the bills on the Legislature’s agenda today is LB 738, which would adjust the income thresholds for Social Security taxation for inflation.
Preventing low- and middle-income Nebraskans from paying higher taxes because of inflation — which would occur under LB 738 — is a desirable goal. However, an amendment on the bill that would delay implementation until 2020 to push the fiscal impact into the future is concerning. Such action could contribute to the next Legislature being faced with difficult budget choices should the state not have the revenue to offset the cost of the measure.
Recent legislative history paints a picture of the dangers of pushing fiscal measures into the future. In 2016, the Legislature passed a series of unfunded revenue-reductions despite warning that they could pave the way for the Legislature facing a significant budget shortfall in the next biennium. The warnings proved to be warranted as lawmakers have found themselves spending the past two sessions making painful funding cuts and taking other steps to close significant budget gaps.
Pushing fiscal measures and revenue reductions into the future has caused problems elsewhere, too, as delayed tax cuts in Kansas and Oklahoma contributed to serious budget woes in those states, too.
Sound fiscal policy calls on legislators to make decisions about tax cuts and funding increases only when the state has the means to afford them. This is a particularly prudent course in our current fiscal climate, which is tremendously uncertain following major tax cuts at the federal level. The federal tax cuts are likely to be offset by large funding cuts for key services and this has major ramifications for the funding of services at the state level. Furthermore, there remains significant questions about how the federal tax cuts will affect taxpayer behavior and this could greatly affect state revenue. The additional uncertainty created by the federal tax changes only adds to the risky nature of pushing the cost of LB 738 and other measures into the future.