OpenSky Executive Director Renee Fry testified before the Revenue Committee in opposition to LB 970
On Thursday, January 26th, OpenSky Executive Director Renee Fry testified before the Revenue Committee in opposition to LB 970. Even though we’re just getting up and running here at OpenSky, we felt compelled to testify because two very important pieces of information seemed to be missing from the debate: 1) LB 970 is not focused on Nebraska’s middle class as advertised, and 2) the cost of the bill would put us in a dire fiscal situation, nearly doubling the $343 million deficit we’re already facing in the coming biennium, bringing it to $660 million.
Our mission is to improve opportunities for every Nebraskan by providing impartial and precise research, analysis, education, and leadership — so we felt the information gap regarding the true distribution and consequences of LB 970 was too central to our mission to remain silent.
Here is our stance on LB 970:
Our organization fully supports, and exists to advance, a strong Nebraska economy, one that has an appropriate mix of pro-growth tax policies while supporting the services and investments needed for Nebraska to thrive. However, LB 970 seriously damages Nebraska’s ability to prosper and create jobs because it severely threatens the vital services that help build a strong economy.
When we first began to study LB 970, our primary concern was that LB 970 appeared to be doing little to help the middle class. According to the Governor’s power point, a family making $1 million will receive an $1,180 cut but a middle class family making $50,000 will receive only a $100 cut. So we asked the Institute on Taxation and Economic Policy to run the distribution numbers for us. More than half the proposed cuts are going to the 20% of Nebraskans who need it the least. And only 20% of the tax cuts go to Nebraskans making less than $57,000/year – who make up well over half our state’s residents. Given that the median household income in Nebraska is $47,470, LB 970 appears to do little to lower the taxes of Nebraska’s middle class.
When analyzing the corporate income tax cut, it also concerned us that it appears as though only 11% of Nebraska c-corporations, those who make over $100,000, and who collectively make 92% of the c-corporation net income, would benefit from LB 970, providing little tax cutting for the majority of Nebraska’s small businesses and family farms.
However, it was when we compared the governor’s budget to the numbers prepared by Nebraska’s legislative fiscal office, that we became truly alarmed. There is a $660 million gap between the two budgets. LFO, on January 20, forecast a $343 million shortfall in the next biennium- without the tax cuts. LB 970 almost doubles this deficit, bringing it to $660 million. Were LB 970 to pass, approximately 8% of the budget as projected by the LFO would need to be cut.
This is after multiple years of cuts. Just last session, to fill a gap of around $700 million, we made difficult cuts to many state priorities and shifted substantial costs onto local governments and property taxpayers. We already have more difficult choices ahead to fill the $343 million shortfall; we do not need to make those choices harder, and those cuts more painful, by adding to the shortfall with these tax cuts. It would be one thing to do that if we had no choice; but here we do have choices.
It’s also important to note that the $660 million figure doesn’t factor in a host of unknown costs: child welfare reform, health care reform, cuts that will flow to the state and localities from the federal sequester, and the impact to the state now that the ethanol subsidy has ended, just to name a few.
We aren’t voicing opposition to tax cuts on the grounds that taxes are so good that no one should want to cut them. We’re opposing the tax cuts because they undermine some of the most effective, time-tested ways to create jobs and build the economy. Every penny of these tax cuts will have to be made up by restraining our investments in the things that really create jobs and a strong middle class, like good schools, safe communities, and quality health care.
As appealing as they might sound at first, tax cuts never exist in isolation – there’s always a tradeoff, and we owe it to our children to be good stewards and provide them with a strong future. Their legacy is our responsibility. Yet LB 970 appears to pay for these tax cuts by reducing spending on our children’s schooling, as well as other necessities such as healthcare, roads and public safety.
Our purpose in testifying was to ask the committee to take this $660 million figure very seriously, and to fully understand – and explain to the public — how $660 million will be cut from LFO’s projected budget before taking any action on LB 970. It is our position that the long term price of LB 970 is not the right thing for Nebraska right now, but that it would be more prudent to wait until our economy has more fully recovered and when there are fewer uncertainties facing our state.
OpenSky Policy Institute is working on a budget and tax primer that we plan to release this spring, along with recommendations to modernize our tax system, which hasn’t undergone major reform since the 80’s. Our tax code is no longer relevant to Nebraska’s economy in many ways, and yet we continue to tinker with the system without regard to the long-term consequences. LB 970 essentially replaces the run-down family car with a new mule.
After our review is complete, our number one priority will be to work to develop comprehensive solutions to provide opportunities for all Nebraskans, without putting our future in jeopardy.
