Taxpayers Aren’t to Blame for Revenue Shortfall

According to a release from the State Tax Commissioner last Friday, Nebraska general fund tax revenues showed a $34 million shortfall from projections. Despite increased budgetary discipline, and even after adjusting the revenue projections downward, tax revenue came up a little shy of one percent short.

Many involved in the budget process felt that the income projections were too optimistic, especially before the board met to re-evaluate the revenue projections in February of this year. The state’s falling revenue can largely be attributed to a receding agriculture sector and falling commodity prices.

In Nebraska, a stagnating farm sector effects the statewide economy as well, If farmers can’t expect the same prices for their crops, that effects businesses all over Nebraska, starting with companies close to farmers in food processing and manufacturing. But those farmers and employees are tightening their belts, too, so they spend less on local businesses, further depressing income tax and sales tax revenues.

How can the state avoid future budgetary binds?

While this year saw budget cuts, Nebraska’s annual budgets have frequently grown faster than GDP over the past decade. A shortfall of revenues relative to expenses was almost guaranteed in a forthcoming period of economic stagnation.

(Sources: http://www.statespending.nebraska.gov/history/index.php, https://faq.bea.gov/scb/pdf/2017/01%20January/0117_gdp_by_state.pdf)

In a recent article, the OpenSky Policy Institute said the state’s revenue picture shows the need for “an honest conversation about whether or not we have a revenue problem,” suggesting the tax system is not asking enough of the taxpayers to pay for public needs. More likely, falling tax revenues indicate that Nebraska cannot sustain its past pattern of spending without the economic growth to pay for it.

With already high state income taxes compared to our neighbors, Nebraska’s budgetary solution isn’t likely higher taxes. Instead, budgetary discipline, especially during good economic times, will better match the state’s obligations with its long-term ability to meet them.