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.