LINCOLN — Nebraska’s latest “tax-cutting spree” will result in the some of the deepest reductions in revenue in the nation, threatening state services, according to a Washington, D.C.-based think tank.

The report from the Center on Budget and Policy Priorities, cited by the Lincoln-based OpenSky Policy Center, said recent tax cuts enacted by Nebraska lawmakers will reduce state revenues by $3.1 billion over the next five years — a 7.6% decline in general fund revenue.

Sixth steepest in the nation

That is the sixth steepest cut in state revenue in the nation, said the report, entitled “States’ Recent Tax-Cut Spree Creates Big Risks for Families and Communities” and were possible, in large part, due an influx of federal aid due to COVID-19.

Rebecca Firestone, OpenSky’s executive director, said the cuts in Nebraska threaten the state’s ability to tackle “real challenges” facing the state and endanger current investments in schools, health care and public safety.

She urged state lawmakers to focus on the future during the 2024 legislative session and not just current priorities.

“We can ensure everyone pays their fair share and that we have the revenue to invest in great schools, stable, affordable housing and high-quality child care,” Firestone said in a press release.

The head of a free-market think tank in Omaha, however, had a different view, saying the recent tax cuts reflect that Nebraska’s taxes had been too high. 

“Nebraska has recently had a record amount of cash on hand which means we have overtaxed our citizens,” said Jim Vokal of the Platte Institute, which issued a report earlier this week urging more tax relief steps.

“Prior to these income tax cuts, Nebraska was woefully uncompetitive in the region,” Vokal said. “The recent moves on taxes were desperately needed to stay in the game.”

One of 26 states that cut taxes

Nebraska was one of 26 states to enact cuts to personal or corporate income taxes over the past three years, according to the Center on Budget and Policy Priorities, a nonpartisan institute based in Washington, D.C., that analyzes state budget and taxing policies.

The Center said the tax cuts were primarily “tilted” toward the wealthy and corporations,and were based primarily on temporary budget surpluses created by the robust federal aid distributed in response of COVID-19 to prevent an economic downturn.

Permanent tax cuts based on temporary budget surpluses are risky, said Firestone, and the decline in state revenue is projected to grow over time.

In the last three sessions, state lawmakers have increased state tax credits to offset property taxes and set in motion a gradual reduction in the top personal income tax bracket and corporate tax rate to 3.99%.

The income tax cuts have reduced state revenue by only $77 million thus far, OpenSky said, but the impact will grow to a projected $1 billion in 2028 alone.

Other alternatives

The Budget and Policy Center’s report noted that some states invested their budget surpluses or rejected deep tax cuts.

Washington State, for instance, enacted a new tax on capital gains received by the wealthiest 0.2% of taxpayers and will use the $500 million a year in projected new revenue for child care and school improvements.

In Kansas — where deep budget cuts in the early 2010s prompted a fiscal crisis — lawmakers rejected a proposed flat tax that was estimated to reduce revenues by nearly $1.4 billion over three years.

“The hard-working Nebraskans who are the engine to our economy face real challenges, but policymakers have cut the revenue we need to tackle those important issues head-on,” Firestone said.

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