Proposed Nebraska tax breaks aren’t fiscally responsible
The Nebraska State Capitol Building in Lincoln. (Rebecca S. Gratz for Nebraska Examiner)
Where have all the fiscal conservatives gone? That phrase once applied to Republicans, as our collective goal was to ensure the health of the government’s balance sheet and protect against government waste.
Now, however, there seem to be very few in the Legislature who care about the state’s financial health, especially looking beyond the next election.
When we were in the Legislature, we faced many tough decisions. Revenues were consistently down, and we had to make budget cuts year after year. Why were revenues down? Because Nebraska has a revenue problem, not a spending problem. We somehow have to find the money to run a state 17% larger than Florida with 20 million fewer people.
To make it work, we’ve spent decades cutting spending, hacking away at government gristle and putting agency budgets in a chokehold. At some point, we cut so much that there was nothing left but meat — the flesh of government required to provide services that Nebraska’s businesses and people rely on, like good roads, accessible health care and a well-educated workforce — and so we cut that, as well.
While we were cutting programs and services, we were also cutting taxes. From 2011 through 2021, we reduced state revenues to the tune of $1 billion a year by the end of the decade — and that doesn’t include 2022, when the Legislature lowered personal and corporate income tax rates, phased in a full exemption for Social Security income and expanded a refundable income tax credit on property taxes paid.
The Legislature is now poised to do in a single year what took us a decade: Cut taxes by more than $1 billion. If they follow through with also providing dollar-for-dollar property tax relief, the state will end up foregoing another $2 billion a year by 2029. The entire general fund budget is just over $5 billion, so how can this level of revenue loss be sustainable?
While it’s true the revenue picture over the past couple of years has been different than when we started in the Legislature, it’s such an anomaly that we’re reluctant to accept it as our new normal. Maybe we’re cynical, but we don’t consider it a solid basis for ongoing spending decisions, especially regarding the cash reserve.
Just like our personal bank accounts, the reserve can run dry if we take out more than we put in — and taking out is definitely on the table this session. For example, one bill, Legislative Bill 727, has more than 20 other bills amended into it that not only pull from the cash reserve but also commit a significant amount of sales tax revenue to fund things like convention centers and retail districts.
So not only is the Legislature spending down the rainy day fund on a sunny day, but it is also reducing future sales tax revenues. This leaves us with little doubt that we’ll end up right back where we were — cutting the meat of government, putting at risk our roads, our schools and our workforce.
Cutting isn’t necessarily going to save us money in the long run, though. The notion of “starving the beast” as a way to control government spending has been around for a long time, but there’s no evidence it actually works. Instead, studies have shown that tax cuts result in spending increases over the long term. This is because the state has to cut so much spending that it ceases to function effectively and then, when the crisis point hits, has to increase spending — and, coincidentally, taxes — beyond what it would have been in order to fix everything that broke.
People say we must cut taxes to be competitive with our neighbors; however, we already lost that race. Kansas beat us in 2012 and we know what happened. Their state government ceased to function, leading to lawsuits over school funding, a net loss of population, lower GDP and many of the Republicans who voted for cuts being ousted in the next election. If that’s where the race to the bottom gets us, we shouldn’t participate.
Kicking the responsibility of a starved state government to future senators is fiscal cowardice. Senators have an opportunity this session to shore up government functions, make investments we couldn’t and be wise with the future of our state. As of now, it doesn’t look like anyone is brave enough to look past the next election, buck the party line and stand up for what’s actually fiscally responsible, but we remain optimistic someone will.
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