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The Missing Argument

New policy institute frames budget debate

As federal deficits were the rage in the recent presidential election and both major political parties jockey for negotiating position ahead of the 2013 fiscal cliff, Nebraska’s tax projections took a positive turn. According to a new public policy institute, however, Nebraska is only having half the conversation it needs on taxes and budgets.

According to the Nebraska Economic Forecasting Advisory Board’s Oct. 27 report, recent revenue projections jumped by $231 million on strong economic growth, closing the projected 2013-2014 budget shortfall to nearly $400 million.
Closing that gap will be required in the next Unicameral session starting January 2013. A new non-partisan organization, the Open Sky Institute, aims to expand the conversation.

Just about a year old and based in Lincoln, the donor-supported think tank describes its mission as providing impartial and precise research, analysis and education that will put Nebraska on a sustainable long-term growth path that balances the state’s needs with revenue. The institute has been called a progressive response to the Platte River Institute, the conservative think tank funded by former Republican senatorial candidate Pete Ricketts.

The Board of Directors is bipartisan, geographically diverse and from varied backgrounds.
Executive Director Renee Fry went to work in October, 2011 and was almost immediately on duty monitoring the effect of an enormous tax cut bill (LB970) with implications that were directly in the sights of Open Sky. The Institute provided data that tracked changes to the bill as it coursed through the legislative process.

By summer 2011, the Institute had completed publication of a “primer” describing elemental processes of state budgeting, spending and funding. Titled “Looking for Clarity: An Overview of Nebraska Budget and Tax Policy,” it is available on Open Sky’s website, openskypolicy.org.

Foremost among the conclusions is one based on the observation that “Nebraska hasn’t had comprehensive tax reform since 1967.” That was when the state took the jarring step of instituting income and sales tax. In the ensuing 45 years, life in Nebraska has changed, the primer says, pointing out that households consume more services than goods and a great many of the goods they do buy are purchased untaxed on the Internet with only voluntary collection.

The result is a tax system that leaves Nebraska with significantly smaller tax revenue as a share of its economy, ongoing structural deficits and a regressive tax system. In fiscal year 1998-1999, state spending equaled 4.3 percent of the state gross domestic product. In FY 2010-2011, that dropped to 3.7 percent, effectively shrinking the state budget by $548 million over that time according the Open Sky. The result is a structural deficit, with tax revenue shortfalls in 14 of the last 16 years.

The Legislature’s Revenue Committee has estimated that if Nebraska taxed the same services that some nearby states do, an additional $40 million would be raised. The National Conference of State Legislatures has estimated that Nebraska’s uncollected internet and catalog sales tax in 2012 will total $118 million.

While Nebraska has a progressive income tax, taxing at a higher percentage with higher income, its sales and property taxes are regressive, overall contributing to a tax system that takes a higher share from middle and lower-income citizens. According to the Primer citing the Institute on Taxation and Economic Policy, families in the bottom 20 percent of income, reporting under $20,000 in annual income, pay a combined 11.1 percent rate in state and local taxes. The top 15, 4 and 1 percent, earning over $88,000, $163,000 or $381,000 in annual income, pay a combined 8.1, 7.9 and 6.1 percent in combined state and local taxes, respectively.

Based on U.S. Census data for fiscal 2010, Nebraska hangs just about in the middle of the states when it comes to the percent of state and local taxes paid from personal income. Of the 50 states, Nebraska is 22nd highest, paying about 10.5 percent of personal income, according to data from the U.S. Census Bureau and U.S. Bureau of Economic Analysis.

How does Nebraska compare to its neighbors? Ahead of it are Kansas at 19th (10.6 percent ) and Iowa at 20th (also 10.5 percent ). Following are Colorado at 30th (9.9 percent ) and Missouri at 47th (8.8 percent ). South Dakota is lowest in the nation, 50th (8.3 percent ).

Since the Primer was released, Fry has traveled the state, meeting editorial boards and speaking to Chambers of Commerce, Rotary Clubs and others sharing the primer and calling for the formation of a Tax Reform Commission. The institute speculates that the Commission might work for two years—setting goals for the state and devising a strategy for prosperity that would deliver the revenue to achieve them. “The Budget Process” chapter outlines the possibility for citizen involvement in the budget-setting process.

“Citizens play a critical role in developing the state budget,” the chapter concludes. “All legislative bills, including appropriations, are given a public hearing, where citizens can testify. You can also be effective by contacting your state senator with your opinion. Nebraskalegislature.gov offers many valuable tools to help you engage in the process, including how to find your state senator and his or her contact information and video streaming to watch committee hearings and legislative debate, just to name a few.”

posted at 05:25 pm
on Wednesday, November 14th, 2012

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