August 10, 2016
Legislators in Nebraska have already been publicly discussing their plans for cutting income tax rates during the next legislative session. Some say such efforts should be coupled with property tax reform. Pairing the two efforts would break the state’s budget at a time we are projected to be facing a greater than $350 million shortfall in the next budget cycle. Nebraskans only have to look to our neighbors to the south to see the folly of such imbalanced plans.
The experience of Kansas should provide Nebraska’s leaders and citizens plenty of reasons to avoid going down the same reckless path, and to pursue a more balanced approach to tax reform.
Much like their counterparts in Kansas, those in Nebraska pushing for income tax cuts promise that doing so brings economic and job growth, but the actual results of Kansas’ action make those promises ring hollow.
The Kansas Legislature cut income taxes on most businesses and for wealthier individuals in 2012, with the promise that it would put the state’s economy in “overdrive.” However, the results more closely resemble an old truck stuck in neutral slowly rolling backwards into the pond.
Since the cuts took effect, the Sunflower State has suffered budget shortfalls, credit downgrades, depletion of the state’s rainy day fund, school funding crises, and increases in both property and sales taxes.
Kansas also lags behind neighboring states, and the U.S. as a whole, in job growth. According to recent job numbers from the U.S. Bureau of Labor Statistics, Kansas had negative job growth from May 2015 to May 2016 (-0.35). Nebraska and other states in the region have maintained steady (albeit slow) job growth over the past few years.
The tax cuts have not benefited all Kansans either. The former Kansas state budget director, Duane Goossen, finds that the combination of increased state fees, such as vehicle licensing, as well as property and sales taxes (increased to fill budget gaps created by the income tax cuts) have actually resulted in a net tax increase for people making less that $42,000 annually. The primary beneficiaries of the tax breaks are those making greater than $500,000 who averaged a $25,000 tax break.
Cuts in income taxes in Nebraska would likely also lead to both higher property taxes for landowners and more budget problems for Nebraska’s public schools. When the Kansas state government cut its aid to schools, and local and county governments due to shrinking income tax revenues, those entities became more reliant on property taxes and other fees to continue to perform their necessary services. A majority of Kansas counties have seen property tax levy increases since the 2012 income tax cuts, with 17 of the 20 highest increases occurring in rural counties.
Schools in Nebraska are already the third most dependent on property taxes for funding in the country, as the state provides the 49th most funding per pupil in the U.S. For those who were not lucky enough to attend Nebraska’s great schools, there are 50 states. Rather than creating more budget problems, Nebraska leaders should focus on fully funding our state’s schools, roads and other essential services.
The Nebraska Legislature recently attempted property tax reform during the 2016 legislative session, but ended up with a property tax credit paid for out of the state general fund to local and county governments. In other words, their last try at property tax relief only added to the current budget shortfall. Property tax relief should be targeted to those who need it most, like homeowners and family farmers, based on income.
Tax reform in Nebraska should be balanced. Calls for coupling property tax cuts and income tax cuts are irresponsible and would be akin to cutting off two legs of a three-legged stool, especially when the state is already on the floor.
Read more from the Grand Island Independent here.