The Nebraska Legislature approved companion tax cut proposals on Thursday that combined would cost the state $5 billion in revenue over coming years, a commitment that jeopardizes the sustainability of education funding and other programs that all Nebraskans rely on.
The personal and corporate income tax rate cuts in LB 754 primarily benefit wealthy Nebraskans, building upon the record-setting tax cuts approved only a year ago. At full implementation in 2027, three-quarters of the tax cut benefits will go to the top 20% of income earners.
The tax cuts in LB 754 come with a significant cost, starting at $88 million in lost revenue next year and growing to $905 million in FY 28-29. The combined price tag of $3.32 billion represents significant revenue that won’t be available to balance budgets in the next economic downturn.
The separate package of property tax breaks in LB 243 will reduce revenues available to the state by $1.76 billion through FY 30-31. The bill includes new revenue caps on the state’s school districts, a provision which essentially ties additional state aid to schools to corresponding property tax deductions.
The $1.25 billion that the Governor and Legislature have committed to the Education Future Fund over the next two years is a significant commitment to improving state aid to public schools. Future Legislatures, however, will be tasked with sustaining a $250 million annual contribution on top of ongoing funding for schools through the state aid formula.
Nebraska’s record budget surplus was built largely on federal stimulus funding that won’t be there in the future. Ongoing inflation and questions surrounding the nation’s debt ceiling are obstacles that could dramatically change the state’s economic outlook. Less revenue will require senators to make tough decisions on programs that benefit working families and communities in years to come.
In his line-item vetoes announced Wednesday, Gov. Jim Pillen previewed what that might look like. The Governor’s letter to the Legislature outlined decisions to “balance our budget,” including line-item vetoes of Medicaid and child welfare reimbursement rate increases and funding for court-appointed special advocates who are a voice for children. The Governor’s vetoes also included state funding for affordable housing, investments that are considered crucial to solving Nebraska’s workforce shortage.
The vetoes outlined by the Governor targeted nearly $108 million in spending over the next two years, a fraction of what the Legislature on Thursday committed to tax cuts in the next biennium as part of LB 243 ($179 million) and LB 754 ($379 million).
Going forward, wise revenue decisions will be key to the state’s economic security and to avoiding painful budget cuts that would harm working families.
