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Sens. Sullivan and Gloor join Legislative Alumni Advisory Committee

We’re excited to announce that former Sens. Kate Sullivan of Cedar Rapids and Mike Gloor of Grand Island have joined OpenSky’s Legislative Alumni Advisory Committee. Both served in the Legislature from 2009 to 2017.

While in the Unicameral, Sen. Sullivan chaired the Legislature’s Education Committee from 2013 to 2017. Sen. Gloor served as chair of the Banking, Commerce and Insurance Committee from 2013 to 2015 and chair of the Revenue Committee from 2015 to 2017.

The Legislative Alumni Advisory Committee is a group of former state senators who help ensure OpenSky develops “value-added” data, analysis and input on policy issues in a manner that meets the information needs of Nebraskans.

Their perspective and experience helps provide historical context to OpenSky’s work and they also help broaden our connections to stakeholders across the state.

Nonprofit Association of the Midlands forums to focus on state and federal budget debates

OpenSky Policy Institute will discuss state and federal tax and budget debates at an upcoming series of forums for members of the Nonprofit Association of the Midlands (NAM).

At the forums, OpenSky will discuss what is happening at the state level, where lawmakers will again face a significant budget gap, and at the federal level, where major tax changes are being considered. OpenSky will help members understand what the budget scenarios mean for our state and for Nebraska’s nonprofits. The forums — which are for NAM members only — will be held:

House releases tax plan, state revenue forecast reduced, DOR study shows income tax cut wouldn’t pay for itself

U.S. House members released their tax plan on Thursday. Among the proposed changes in the plan are the elimination of itemized deductions for medical expenses and state income and sales taxes paid.

The House plan also caps the itemized deduction for property taxes paid at $10,000.  According to Internal Revenue Service data, nearly 30 percent of Nebraska filers utilize itemized deductions and could potentially see their taxable incomes increase as a result of deductions being eliminated and changed.

We will release more analysis of potential federal tax plans as more details become available.

In state fiscal news, the Nebraska Economic Forecasting Advisory Board last week revised its revenue forecast downward, which means lawmakers now face a $195 million revenue gap as they approach the next legislative session.

OpenSky Executive Director Renee Fry urged state leaders to refrain from taking any significant budget actions until after the February forecast at the earliest in order to give themselves time to understand what effect potential federal tax changes might have on state revenues.

The revised forecast also illustrated that now is not a good time to consider revenue reducing measures, Fry said.

“Our revenue system is not keeping up with the needs of our state and further reducing revenue could harm our schools, public safety programs and other services that are vital to our state and its economy,” Fry said.

In other state fiscal news, the Department of Revenue on Wednesday released a tax burden study that showed a $100 million income tax cut would not generate enough economic growth to pay for itself. A hypothetical $100 million personal income tax cut would result in a net loss of $95 million in tax revenue and largely benefit Nebraskans with the highest incomes, the study found.

Because an income tax cut would not generate near enough activity to pay for itself in terms of increased state revenue, cuts to education, health care and other vital services or increases in other taxes would be required to offset the revenue losses created by such a tax cut, Fry said.

Read more about the tax burden study.

 

Department of Revenue study shows income tax cut would not pay for itself

LINCOLN — A $100 million income tax cut would not generate enough economic growth to pay for itself, a tax burden study released Wednesday by the Nebraska Department of Revenue shows.

A hypothetical $100 million personal income tax cut would result in a net loss of $95 million in tax revenue and largely benefit Nebraskans with the highest incomes, the study found. According to the study, the majority of the income tax reduction — 67 percent — would go to households making $100,000 or more, (see table 10 on page 20 of the report) roughly the wealthiest 20 percent of Nebraskans (see table 3 on page 10 of the report). Furthermore, the top 7 percent of households (over $150,000) would get almost half (49.08 percent) of the income tax cut.

“The Department of Revenue study shows the increased economic activity generated by an income tax cut would not be near enough to pay for itself in terms of increased state revenue,” said Renee Fry, executive director for the OpenSky Policy Institute. “This means cuts to education, health care and other vital services or increases in other taxes would be required to offset the revenue losses created by an income tax cut.”

The study also found that a $100 million sales tax cut would actually generate more economic activity than an income tax cut of the same size but also would not come close to paying for itself in terms of increased state revenue.

Some of the income tax cut may leave the state as “individuals seek investment opportunities, not only within the state, but also in other states and other countries,” the study found. (Page 19)

The study also shows that the actual income tax rate paid by most Nebraskans — including those with the highest incomes — is lower than the state’s top rate of 6.84 percent. For example, the effective income tax rate paid by the state’s top 500 earners in 2014 was 3.95 percent (see table 13 on page 24 of the report).

Below are some excerpts from the report:

On income tax cut leaving the state

“Nevertheless, an extra portion of savings may not directly relate with investment in Nebraska since individuals seek investment opportunities, not only within the state, but also in other states and other countries.” Page 19

On income tax cuts benefiting higher income groups

“It implies that a tax policy, which reduces the income tax rate, would have more economic benefit for higher income groups.” Page 20

On why top 500 returns pay lower effective tax rate than the top 10th decile

“The top 500 resident returns are much more likely to report pass-through income from business investment. Therefore, taxpayers are also much more likely to report large amounts of capital gains from the sale of businesses or business assets. In addition, these taxpayers are also more likely to have benefited from Nebraska’s economic development programs — including the Employment and Investment Growth Act (LB 775) and the Nebraska Advantage Act (LB 312) — reducing tax liability for individuals.” Page 25

Contact Chuck Brown at 402-610-1522 or cbrown@openskypolicy.org for more information.

OpenSky statement on the latest forecasting board projections

LINCOLN — The following is a statement from OpenSky Policy Institute Executive Director Renee Fry regarding the projections made Friday by the Nebraska Economic Forecasting Advisory Board:

“Today’s reduced forecast underscores that Nebraska faces tremendous uncertainty regarding our revenues as we don’t have a full understanding how federal tax changes could impact us. Our revenue system is not keeping up with the needs of our state and further reducing revenue could harm our schools, public safety programs and other services that are vital to our state and its economy. It would be prudent for lawmakers to wait until after the February forecast at the earliest to make any significant budget changes so that we can have a clearer understanding of our true revenue situation.”

Contact Chuck Brown at 402-610-1522 or cbrown@openskypolicy.org for more information.

Tax Expenditure Report hearing set for Thursday, Forecasting Board to meet on Friday

A hearing regarding Nebraska’s tax expenditures on Thursday and a meeting of the Nebraska Economic Forecasting Advisory Board on Friday will highlight a big week of Nebraska fiscal policy activity.

The Legislature’s Revenue and Appropriations committees will hold a joint hearing Thursday to discuss the Department of Revenue’s Interim Tax Expenditure Report. The hearing starts at 10 a.m. in State Capitol, Room 1113. NET Nebraska will stream the hearing live.

The enactment of the hearing is one of several steps Nebraska lawmakers have taken in recent years to bring more transparency to our state’s tax expenditures. Tax expenditures are like spending in that they represent money the state uses for some purpose. The difference is that instead of tax revenue being collected and then spent, the money is not collected in the first place. But while the Legislature must authorize spending every biennium, tax expenditures are generally only authorized once and then permanently written into the tax code. This allows some tax expenditures to outlive their usefulness and become significant drains on state revenue.

The Nebraska Economic Forecasting Advisory Board will meet Friday to forecast state revenue collections. The board will examine measures such as the state’s unemployment rate and economic activity to estimate individual income, corporate income, sales taxes, and other miscellaneous revenues the state can expect.

The forecasting board’s revenue projections could have significant ramifications for lawmakers as they look to make budget and tax policy decisions in the upcoming Legislative session. The most recent report on state tax receipts show the state is trailing the revenue forecast for the current fiscal year, which began July 1, by about $20 million. The meeting starts at 1 p.m. in the State Capitol, Room 1510. OpenSky will provide updates from the forecasting board meeting on our Twitter page.

OpenSky analysis finds federal tax changes could have major ramifications at the state level

LINCOLN —  As the U.S. Senate prepares to vote this week on its budget resolution, a key step in the implementation of federal tax changes, a new OpenSky Policy Institute analysis finds such changes at the federal level could have a profound impact on Nebraska and its state budget.

From large decreases or increases in state revenue, to cuts to key services that Nebraskans need, to increased stress regarding property taxes, the potential effect of federal changes could be far reaching, the analysis finds.

However, the analysis notes, the lack of details regarding the possible changes creates tremendous uncertainty about their true effects and this brings the need to for federal and state policymakers to exercise caution when it comes to fiscal policy choices.

“With so much uncertainty regarding the tax changes and their impact on our state and its residents, it will be important for both federal and state policymakers to be sure understand the full effects of any tax plan before making any fiscal policy changes,” said Renee Fry, executive director of OpenSky Policy Institute. “Not doing so could have major unintended consequences for our state and for Nebraska residents.”

The new analysis notes:

  • The close link between the federal tax code and Nebraska’s tax code means some of the potential federal changes could automatically create large state revenue losses or gains;
  • Programs and services in our state budget that receive federal dollars could be cut significantly if federal tax cuts are offset by federal funding cuts;
  • Federal funding cuts could more than offset any state revenue gains that might be sparked by federal tax changes;
  • If the tax changes result in state revenue losses, Nebraska lawmakers may need to cut education and other services, find other revenue sources or pass the cost of these services on to property taxpayers where possible;
  • The potential elimination of deductions for state and local taxes and for medical expenses could increase stress for Nebraska property taxpayers and those with significant medical expenses; and
  • The vast majority of tax savings created by the tax changes would likely go to wealthy households and a lack of detail regarding the changes makes it difficult to tell what, if any, tax savings, might go to middle-class Nebraskans.

Contact Chuck Brown at cbrown@openskypolicy.org or 402-610-1522 for more information.

Recapping OpenSky’s Fall Symposium

Tune out the “war among the states” regarding business location. Avoid tax incentive “megadeals.” Reform large tax incentive programs. Focus instead on public investments like education and infrastructure, which really matter to the “business basics” — the 98 percent of business costs that are not state and local taxes.

Those were the main messages laid out by Good Jobs First Executive Director Greg LeRoy at OpenSky’ss third-annual Fall Policy Symposium last month.

This is especially true, LeRoy said, at a time when federal support for education, infrastructure and other key factors for economic development is likely to diminish greatly. In this new reality, states should be increasingly selective with how they use their own revenues.

“State and local taxes only make up 2 percent of a company’s cost structure,” said LeRoy, who is one of the nation’s foremost experts on business tax incentives. “If you can help companies with the other 98 percent … that’s what’s going to pay off.”

The “Other 98 percent” includes things like access to a strong workforce, infrastructure, utilities, great schools, safe communities, university partnerships and the ability to cluster with related businesses, LeRoy said.

These larger cost factors drive business location decisions so strongly that the majority of location choices are already known by companies before they even approach states and cities for tax breaks, he said.

LeRoy discussed other aspects of his research and noted that nationally, the average cost per job from tax incentive programs is about $658,000; and that across the country, large corporations receive about 70 percent of the tax incentive deals and about 90 percent of the tax incentive dollars. This runs counter to an argument that incentives help small businesses, he said.

Looming federal changes have potentially large ramifications Nebraska revenues, services

In a presentation regarding potential tax and budget changes at the federal level, OpenSky Executive Director Renee Fry said such changes could come soon as part of Congress’ budget reconciliation process.

Depending on the changes that are made, the tax changes could automatically reduce or increase state revenues, and to pay for those tax cuts, congress could significantly reduce federal funding for Medicaid, K-12 education, farm subsidies and many other programs that are important to Nebraskans, she said.

Therefore, the federal budget and tax policy debates will have a series of implications not only for individual taxpayers, but could put further pressure on state budget and tax policy decision making, forcing state lawmakers to either make further funding cuts to vital state services or raise revenues, Fry said.

Fry’s comments were followed by an update on the state budget by Sen. John Stinner, chair of the Appropriations Committee, who noted that state revenues continue to trail projections and this could lead to more budget cuts when the Legislature convenes in January.

Factors such as changing demographics, untaxed internet sales and previous tax cuts are contributing to Nebraska’s revenue problems, Stinner said.

Planning committee looks to challenges of the future

During a panel discussion on changing demographics and the work of the Legislature’s Planning Committee, Jerry Deichert, Director of the Center for Public Affairs Research at the University of Nebraska Omaha, noted that our population is:

  • Becoming more concentrated in its most populous counties;
  • Getting older and will continue to age; and
  • Becoming more racially and ethnically diverse.

As planning committee members discussed what these demographic changes could mean for state policy, Sen. Tony Vargas said that the growing number of immigrant children in Nebraska increases the need for high quality early childhood education. Meeting this need will be essential in preparing our state’s future workforce for success.

Planning Committee Chair Sen. Paul Schumacher and other panel members referenced a Legislative Fiscal Office list of tax changes passed between 2006 and 2015 as they talked about the possible need to reform tax breaks to meet future challenges.

Kansans pass on lessons and experiences from tax cuts

During a panel discussion on Kansas’ income tax cuts, Rep. Melissa Rooker, a Republican member of the Kansas House of Representatives, described a shift in message among tax cut advocates in the wake of the tax cuts. When the tax cuts passed, Rooker said, advocates promised the state would see a shot of economic adrenaline. Years later, these advocates were begging for more time to let the economic benefits kick in as budget damage mounted.

Devin Wilson of Game On For Kansas Schools — a group that works to protect school funding in Kansas — said Kansans were told that the budget damage would eventually subside and give way to growth, but that never occurred.

In the end, Rooker noted that the budget damage caused by the tax cuts cost lives as the revenue losses ravaged services like corrections, education and roads.

Panel discusses drawbacks and virtues of Nebraska business taxes

During a panel discussion on business taxes in Nebraska, University of Nebraska Law Professor Adam Thimmesch, whose research focuses on tax policy, recounted a time when he brought a business owner to speak to one of his classes.

A student asked the owner why he kept the business in Nebraska. The owner discussed things such as the work ethic and humility of Nebraska workers. Taxes incentives were never mentioned as a factor, Thimmesch said.

Randy Thelen of the Greater Omaha Chamber of Commerce noted that while the chamber doesn’t lead with business incentives when approaching businesses about locating in Nebraska, incentives are important in ultimately getting a business to set up shop in Nebraska.

Thimmesch and former Tax Commissioner Kim Conroy said the tax exemptions the state offers business are eroding the state’s tax base and this has an effect on tax rates.

While discussing the political pressure that often leads to tax breaks becoming law, former Nebraska Tax Commissioner Kim Conroy said, “Good tax policy and good politics are often not the same thing.”

Robert Zahradnik of the Pew Charitable Trusts noted states struggle to tell if business incentives are sound investments because tax breaks aren’t subject to regular review in the same manner regular government spending is by way of the appropriations process. However, Zahradnik said, efforts in Nebraska and other states to improve transparency and review of tax breaks will help states better determine if the tax breaks are worth the investment.

Ballot initiative and school funding the focus of property tax panel

During a panel on previous efforts to lower property taxes, Nebraska Farmers Union President John Hansen gave an overview of various ballot initiative measures in Nebraska that were aimed at lowering property taxes. Most of the measures were voted down by Nebraskans, illustrating the difficulty of passing tax legislation via the ballot. Hansen’s comments came at a time when some in Nebraska are talking of another ballot initiative aimed at lowering property taxes.

Former Sen. Bob Wickersham said the implementation of the state’s school funding formula — the Tax Equity and Educational Opportunities Support Act (TEEOSA) — was initially successful in helping reduce property taxes and this contributed to the state reaching a “high-water mark” for property-tax relief in 1998. TEEOSA, other efforts to increase aid to local governments, caps on property tax levies and local government spending, and improved assessment processes combined to effectively bring down property taxes, Wickersham said. Since then reductions to TEEOSA Aid, elimination of aid to other local governments, steep rises in agricultural land prices and other factors contributed to increased property taxes.

In response to comments about school spending, Wickersham recommended attendees read a 2015 report from the Legislative Fiscal Office. The report found that school spending growth is at its lowest level in 30 years and that issues such as a shift in population from rural to urban areas and fixed costs in districts with declining population are having a major impact on Nebraska’s average per pupil costs.

Legislative candidates urged to learn the committee process, build bridges

During a panel for legislative candidates, former Sens. Annette Dubas and Mike Gloor and current Sens. Roy Baker and Laura Ebke offered insight to candidates about working in the Unicameral. In their comments, they urged candidates to:

  • Become familiar with the importance of the committee process and legislative rules;
  • Prepare to be publicly questioned on an assortment of issues that you may not know much about presently;
  • Work to build bridges with fellow senators; and
  • Lean on and value the contributions of legislative staff members as they often have vast experience and expertise that will be essential in one’s success as a lawmaker.

Download symposium documents and materials

More documents from our symposium, including a slide show featuring Jerry Deichert’s demographic changes presentation and Greg LeRoy’s keynote presentation, can be downloaded here.

OpenSky statement on the federal tax framework

For immediate release — Sept. 27, 2017

LINCOLN — The following is a statement from OpenSky Executive Director Renee Fry regarding the tax framework introduced Wednesday by President Donald Trump and congressional Republicans:

“While significant uncertainty remains about how the federal tax framework would affect Nebraska, tax changes always result in winners and losers and most analyses to-date find that the wealthiest individuals and corporations would benefit the most from the proposed package. Federal tax changes could also put increased stress on our already strained state budget and lead to more cuts to education, health care and other services that Nebraskans need. Furthermore, elimination of itemized deductions could have serious implications; for example, eliminating the deduction for local taxes could exacerbate the stress of property taxes on Nebraska’s property taxpayers. With so much uncertainty regarding the tax changes and their impact on our state and its residents, it will be important for both federal and state policymakers to proceed cautiously, taking care to understand the full effects of any tax plan.”

Contact Chuck Brown at 402-610-1522 or cbrown@openskypolicy.org for more information.

Slides and other symposium documents available for download

Thanks to everyone who attended Thursday’s Fall Policy Symposium! We hope you found the event as informative and enlightening as we did. The following documents from the symposium are now available for download:

A larger recap of the symposium will be published soon.