State governments across the nation are looking to cut income tax rates. We are paying close attention to legislators in Nebraska who are publicly discussing their plans for cutting income tax rates. Some say efforts should be coupled with property tax reform. Pairing the two would break the state’s budget at a time when we are projected to face 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, those in Nebraska pushing for income tax cuts promise that doing so brings economic and job growth, but Kansas’ results 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 in job growth. According to the U.S. Bureau of Labor Statistics, Kansas had negative job growth from May 2015 to May 2016 (-0.35). Nebraska and other nearby states have maintained steady (albeit slow) job growth.
The tax cuts have not benefited all Kansans either. Former Kansas Budget Director Duane Goossen finds the combination of increased state fees, as well as property and sales taxes (increased to fill budget gaps created by the income tax cuts) have resulted in a net tax increase for people making less than $42,000 annually. The primary beneficiaries of the tax breaks are those making greater than $500,000 averaging a $25,000 tax break.
Cuts in income taxes in Nebraska would likely lead to 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 governments due to shrinking income tax revenues, those entities became more reliant on property taxes and fees to continue performing necessary services. A majority of Kansas counties have seen property tax increases since the 2012 income tax cuts, with 17 of the 20 highest increases occurring in rural counties.
Schools in Nebraska are already the 3rd most dependent on property taxes for funding in the country, and are ranked 49th among the states in funding per pupil in the U.S. Rather than create more budget problems, Nebraska leaders should focus on fully funding our state’s schools, roads and other essential services.
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.
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