Nebraska state senators are giddy. For the first time in many years, revenue projections are providing the Legislature with considerable room — about $210 million — for tax cuts and spending projects. Debate on the proposals begins this week.
Lawmakers are holding the budgetary reins and seem eager to loosen them. Coming days may bring repeated scenes of tax-cut and spending horses galloping wildly free, set loose by a series of exuberant “yes” votes at the State Capitol.
A note of caution is needed: Senators, hold your horses, please.
Remember that number we cited: $210 million? That’s the maximum fiscal room lawmakers have for tax reduction and spending items this session. Actually, the Legislature has no obligation to spend all of it. But don’t expect lawmakers to show such restraint. At least senators are pledging to be careful not to exceed that important $210 million threshold, right?
Well, the signs so far aren’t encouraging.
If you look at the projected tax-cut proposals that have come out of the Revenue Committee, they add up to far more than $210 million. And the proposed spending from individual bills adds to the total still further.
Consider these rough projections for the revenue impact for the upcoming two-year budget from just some of the tax-cut proposals: $95 million, $47 million, $46 million, $39 million, $12 million, $10 million.
Our point isn’t that the Legislature should reject all tax cuts and spending proposals. But the need, as always, is for a responsible sense of balance. Senators have a duty to proceed soberly in deciding which measures to approve and which to reject.
After years of tight budgets, though, lawmakers are eager to spend, and they’ve placed far more revenue-affecting proposals for consideration than the upcoming two-year budget can sustain.
Here are two examples showing the need for lawmakers to take a deep breath and consider the ramifications of what they’re being presented:
Legislative Bill 64, as amended in committee, would phase in a complete tax exemption of Social Security income over nine years. By 2030, all Social Security income would be exempt. Reducing the financial burdens on senior-age Nebraskans is a worthy goal. At the same time, as everyone knows, the percentage of Nebraskans of retirement age is set to increase over the next decades, with the increase especially steep in rural communities. The state’s population aged 65 and older has increased from 246,000 in 2010 to more than 324,000 now and is heading toward 418,000 by 2030.
Senators must seriously ponder: How far should the state responsibly go in shifting the tax burden toward younger Nebraskans?
When LB 64 is fully implemented, it would mean a projected annual revenue loss of $131 million, a significant sum. One analysis indicated that two-thirds of the tax benefit would go retirees with an annual income exceeding $114,000. Most Nebraska young people, who would still be fully subject to state income tax, earn far less than $114,000 per year.
Our second example involves one of the strangest developments this session at the State Capitol: LR 11CA. It’s hard to exaggerate how sweeping that legislation is: It would place a resolution on the statewide 2022 ballot and proposes that Nebraska eliminate all forms of taxation except a consumption tax.
A 10.64% consumption tax — a de facto sales tax — would apply to all new goods and services sold in Nebraska. (Notice the word “new”: Sales of new cars would be subject to the tax. Sales of used cars would not. Is that sound tax policy? No.) All sorts of economic activity not currently subject to taxation would be taxed. Examples include health care and mortgages. Such a tax-policy transformation would create an extraordinary array of economic uncertainties and distortions, not least since Nebraska would be alone among the states in taking such a radical step.
This tax proposal never should have gotten out of committee. It needs far more scrutiny and vetting (to put it mildly). If supportive senators wanted to discuss its effects further, they could have held a lengthy Zoom session. Instead, they’re going to waste precious time for the entire Legislature on a proposal that’s nowhere near ready for final consideration.
This situation shows how the legislative process is harmed when lawmakers casually indulge in so much vote-trading that faulty legislation is irresponsibly voted out of committee. Serving in the Legislature is a privilege, and it must be taken seriously.
Decades from now, historians will look back at this Legislature and make a judgment on how lawmakers approached the taxing and spending decisions before them. Did senators proceed cautiously and prudently, protecting long-term budgetary stability? Or did they make choices that ultimately added to the state’s budget woes long after the senators had left office?
Senators, choose wisely this week.