LINCOLN, Neb. — Nebraska’s tax collections could rise or fall dramatically based on the outcome of the federal tax package that’s working its way through Congress, a state analyst told lawmakers Thursday.
State officials can’t predict how the proposal might affect tax collections or the state budget, but even now, the prospect of lower future tax rates has prompted some investors to hang onto their holdings rather than sell, said Legislative Fiscal Office Director Michael Calvert.
Nebraska’s tax code is closely tied to the federal code, so tweaks to federal deductions or credits could trigger automatic changes in state revenue, which has recently been growing at a slower-than-average rate. That could create problems for lawmakers who have to balance the budget next year in the face of a projected $173.3 million revenue shortfall.
“I’ve never had this kind of discussion before, but I think the risks are really, really significant because of the uncertainty,” Calvert said in testimony to the Legislature’s Tax Rate Review Committee.
The Lincoln-based OpenSky Policy Institute issued a similar warning last month, noting that the state faced a similar conundrum in 2002 and 2003, when President George W. Bush’s tax cut package threatened to trigger a $416 million loss in state revenue over five years. Lawmakers at the time decoupled some of their tax laws from the federal system, shrinking the projected loss to $84 million.
Despite the uncertainty, Gov. Pete Ricketts has remained a vocal champion of the GOP tax package. In a news release Thursday, he and other Republican state officials reiterated their support and urged Congress to pass it quickly. Critics have said the Republican plan favors the wealthy.
“Providing relief will put more money back into the pockets of hardworking families and unleash economic growth in communities across our nation,” Ricketts said.
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