LINCOLN — The chances of Nebraskans seeing significant tax cuts this year jumped sharply Monday, thanks to an optimistic new forecast of state revenues.
The Nebraska Economic Forecasting Advisory Board boosted its revenue projections for the two years ending June 30, 2023, by $775 million, despite concerns raised by several members about economic uncertainties.
Lou Ann Linehan
State Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chairwoman, welcomed the new forecast. She said she hopes it will convince lawmakers to pass more tax relief than the committee has proposed so far.
Measures currently before the Legislature would cut the top individual and corporate income tax rates, eliminate income taxes on Social Security benefits and continue income tax credits for property taxpayers at the current level.
Linehan said it remains to be seen what additional cuts could be made. During debate about the income tax rates, some lawmakers had called for changes to benefit lower-income working families, such as increasing the state earned income tax credits.
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John Stinner
Sen. John Stinner of Gering, the Appropriations Committee chairman, said he anticipates tax cuts will be possible under the new forecast. He said he will look closer at the numbers to see what would be a prudent amount for cuts.
“We need to sit down and figure out what kind of cushion we need,” he said.
Stinner noted that the new projections would push the state’s cash reserve fund to a record $1.7 billion by the end of the two-year budget period. He said a $1.3 billion or $1.4 billion balance would give the state security against the next economic downturn.
The forecasting board boosted its projections of state tax collections for the current fiscal year to $5.725 billion, or $370 million more than its previous number. By law, that money will automatically go into the cash reserve.
For the following year, the board added $405 million to its projections, increasing the total to $5.96 billion. After accounting for a 3% budget cushion, lawmakers will have $392.7 million more revenue available for the two-year budget period.
The forecasting board sets the revenue figures used by both the Legislature and the governor in crafting the state budget and determining the financial impact of other tax and spending measures.
During discussion, board members reported seeing signs both of concern and of a booming economy in their areas.
John Kuehn, a former state senator from Heartwell, said the upbeat economic data for the state is at odds with the feeling he gets from talking with people. He said they raise worries about inflation, worker shortages, housing costs and supply chain breakdowns.
Other board members pointed to the war in Ukraine, dry conditions for agriculture and the unknown effects of the federal pandemic relief measures.
“This is one of the most uncertain periods I can remember,” said Jerome Deichert of Omaha. “We know we’re going to be really wrong” with the forecast.
The Appropriations Committee last week voted to increase payment rates by about 15% for health and human services providers, which are struggling to fill jobs in a tight labor market and to deal with disruptions caused by the pandemic.
The change would cost $55.4 million in the coming fiscal year. With the new projections, that would leave about $443 million for tax cuts or other priorities in the two-year budget period.
Legislative Bill 939, the income tax proposal, would reduce the top individual income tax rate by 14.6% over three years and cut the top corporate rate by 22% over four years.
The bill would cut state tax revenues by $63.6 million in the coming fiscal year and $187.1 million in the following year, with the size of the reduction continuing to grow in future years. By fiscal year 2025-26, it would mean nearly $400 million less for state coffers.
The other two tax proposals would further cut future revenues. LB 825 would phase out income taxes on Social Security benefits, reducing revenues by about $41 million in its first year, working up to a $70 million reduction when fully implemented.
LB 723 would continue a program providing income tax credits for property taxpayers at the current level, amounting to a $200 million difference in revenues.
