Trump tax plan could create ripples in Nebraska state budget
LINCOLN, Neb. (AP) — President Donald Trump’s proposed tax plans could have major implications for Nebraska’s tax collections and budget, but state officials say it’s too early to know specifically what the changes might mean.
The changes could result in large increases or decreases in state revenue or cuts in government services, according to an analysis by the OpenSky Policy Institute, a Lincoln-based group that has been critical of tax cuts for the wealthy. It also could make it harder to lower property taxes, the analysis found.
For instance, one piece of the plan would allow businesses to claim depreciation costs on their taxes all at once instead of over time. Fry said the faster write-off would lead to a decline in state revenue.
The state could see a revenue uptick, however, if Congress enacts part of the plan that eliminates certain federal deductions. Getting rid of the deductions could raise a taxpayer’s adjusted gross income and force them to pay more in state taxes.
“There are still a lot of unknowns,” said Renee Fry, OpenSky’s executive director.
Trump’s tax plan would significantly reduce marginal tax rates and increase standard deductions, but would cap itemized deductions. The package would cut taxes at all income levels, but the wealthiest households would save the most and reap the largest proportion of the benefits.
Nebraska’s tax code is more closely tied to the federal code than most other states, so tweaks to federal deductions or credits could trigger automatic increases or decreases in state revenue, according to the analysis. Fry said smaller states such as Nebraska usually align their tax codes with the federal code because it’s less work for the state.
“The downside, of course, is that when there’s a change in federal tax law, it could impact us without us even doing anything,” Fry said. “It’s something (Nebraska lawmakers) need to be paying attention to.”
Fry said the state faced a similar conundrum in 2002 and 2003, when President George W. Bush’s tax package threatened to trigger a $416 million loss in state revenue over five years. Lawmakers at the time disconnected part of their tax system from the federal system, shrinking the projected loss to $84 million.
The report also noted that state programs that rely on federal funding could see cuts, forcing Nebraska lawmakers to scale back the programs or make up the difference with state money.
Despite the uncertainty, Gov. Pete Ricketts said he was confident the state could adjust to tax policy changes. He noted that state spending growth has slowed under his administration, and said Congress should do more to reduce taxes.
“The only way we can have sustainable tax relief is by controlling spending,” Ricketts said Thursday at a news conference.
State budget officials said it’s far too early to know how the tax plan might affect the state’s finances.
“There are a million different things that could possibly happen” with the federal changes, said Nebraska State Budget Administrator Gerry Oligmueller.
Sen. Paul Schumacher introduced a bill earlier this year that would have automatically disconnected the state tax system from the federal government system if Congress and the president approved any major tax changes. The bill passed, but was watered down to only require that lawmakers receive a report about how the changes might affect the state.
Schumacher, of Columbus, said he was concerned that state lawmakers wouldn’t be able to compensate for a sudden revenue loss because many would be concerned about appearing to raise taxes. Any such effort would likely require a 33-vote supermajority to overcome a filibuster, he said.
“If we can’t adjust our tax situation because of that deadlock, then we have a disastrous problem,” said Schumacher, who leaves office in 2019 because of term limits. “The importance of being able to adjust at the state level is really important, so we don’t go broke.”
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