The writer is executive director of the OpenSky Policy Institute.
Let’s be clear about what would really result from Nebraska conforming to the tax changes in the CARES Act — large state business tax cuts for some wealthy business owners and investors in the midst of a pandemic.
Department of Revenue data indicate conforming to the CARES Act tax changes would result in a $250 million state revenue loss over the next three years, with about $230 million of that coming in the form of tax breaks to businesses, regardless of whether they have been hurt by the pandemic.
About 75% — or $187 million — of the $250 million revenue loss would be caused by a single tax break for business losses that is only accessible to some individuals who make at least $250,000 annually and married couples filing jointly who make at least $500,000 annually.
With that in mind, the fundamental question for state leaders becomes simple: Is this really the right policy for the state at this unprecedented time?
The virus has already taken a large toll on our economy, and national economists project states will experience pandemic-related revenue losses of at least 10%. Because Nebraska must balance its budget, revenue losses of this magnitude will almost certainly result in cuts to vital state services like K-12 and higher education. The $250 million state revenue losses created by conforming to the federal tax changes would come on top of any pandemic-related revenue losses and would occur immediately, before the state addresses other state priorities like investing in education or enacting property tax relief.
The CARES Act tax breaks also would come in addition to other aid Nebraska businesses have received since the onset of the pandemic, including $3.4 billion in Payroll Protection Loans as well as $330 million in CARES Act relief funds specifically for COVID-19 assistance. Furthermore, when state lawmakers reconvene next week, some will advocate for a new tax incentive program to provide more tax breaks for businesses.
Considering that aid for businesses has been significantly more robust than it has been for average Nebraskans, many of whom are unemployed and struggling mightily, the ramifications of conforming to the CARES Act tax changes — not to mention the optics — are troubling.
Does the state really want to lay off teachers and paraeducators in the middle of a pandemic to help fund tax cuts for the wealthy? As schools, colleges and universities try to bring students and teachers safely back to campus, do we really want to cut their funding to ensure a tax break for some Nebraskans who make more than $500,000 a year?
Nebraska can avoid this situation by decoupling from the CARES Act tax changes. There is precedent for this, as we have decoupled from federal tax changes multiple times in the past, including in 2017, when we decoupled from parts of the Tax Cuts and Jobs Act to avoid tax increases. Furthermore, other states, including North Carolina and Georgia, which share Nebraska’s reputation for being business friendly, have decoupled from some provisions of the CARES Act changes to avoid budget shortfalls.
Like North Carolina and Georgia, Nebraska lawmakers don’t have to decouple from the tax changes in their entirety. For example, they could decouple from the provision that provides the $187 million tax break for some wealthy Nebraskans while maintaining other provisions, such as ensuring that forgiven PPP loans are not included in taxable income.
Some Nebraska businesses have been hit hard by the pandemic. The tax changes in the CARES Act, however, won’t help the vast majority of our state’s businesses nor will they help the vast majority of Nebraska residents in general. To the contrary, the CARES Act tax changes are predominantly tax cuts for some of the wealthiest Nebraskans and will likely contribute to reduced investments in services that are essential to helping our state recover and thrive as we look to the future.
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