Forecast calls for $475 million boost to Nebraska tax receipts
Today, the Nebraska Revenue Forecasting Board convened to meet its statutory obligation to update the state’s revenue estimates. These figures will be used when the Legislature convenes in January 2022 until the forecast is updated again at the end of February.
The theme in today’s meeting was inflation—the impact it will have on the state’s economy, the impact it’s having on employers in the agricultural, manufacturing, and construction industries, and what impact it will ultimately have on Nebraska families. Overall, the concern is that inflation is imposing higher input costs for Nebraska businesses. The example that was referenced many times was the price of fertilizer, and a barrel of oil, and how many do not anticipate these prices to come down soon. That reality is also coupled with supply chain issues and the tight labor market in Nebraska.
That said, the overwhelming sentiment from board members was that the state’s economy is doing well and will continue to do well. Nebraska has recovered from the pandemic faster and much stronger than many states.
The Legislative Fiscal Office shared with the board the total amount of federal relief that has come into Nebraska. In total, the state has received $21,245,557 from relief legislation, which equates to approximately 20.1% of total Nebraska personal income. For a comparison, all of Nebraska’s state and local taxes make up approximately 10.5% of the state’s personal income. This large injection of cash has contributed to the state’s revenue surplus, and many felt it complicated the forecast process, because it distorts what is really going on in the economy.
As far as the forecast itself, the board is presented with national macroeconomic forecasts from both IHS Economics and Moody’s Analytics, as well as adjusted forecasts from the Nebraska Department of Revenue and the Legislative Fiscal Office. While the national outlook is not overwhelmingly positive for fiscal year 2022 or 2023, when looking at Nebraska specifically, the outlook is much different. Many in state government and on the board believe the next two years will be more positive.
The board increased the forecast for the current fiscal year as well as the next fiscal year (2023). Nebraska state law only requires the forecast to be certified if it is lowered. Since this meeting increased the forecast, it was not recertified. This is important to note because if revenues continue to be strong, it will look as though the state is far surpassing the forecast in the monthly reports, when it might be doing exactly what the board predicted.
| Fiscal Year 2021-2022 (in millions of dollars) | ||||
| April 29 Board Forecast | October 29 Board Forecast | Percent Difference | ||
| Sales and Use Tax | 1,993 | 2,050 | 3% | |
| Personal Income Tax | 2,314 | 2,540 | 10% | |
| Corporate Income Tax | 350 | 540 | 54% | |
| Miscellaneous Taxes | 223 | 225 | 1% | |
| Total | 4,880 | 5,355 | 10% | |
| Fiscal Year 2022-2023 (in millions of dollars) | ||||
| April 29 Board Forecast | October 29 Board Forecast | Percent Difference | ||
| Sales and Use Tax | 2,120 | 2,180 | 3% | |
| Personal Income Tax | 2,478 | 2,700 | 9% | |
| Corporate Income Tax | 311 | 450 | 45% | |
| Miscellaneous Taxes | 219 | 225 | 3% | |
| Total | 5,128 | 5,555 | 8% | |
Nebraska still has many economic obstacles to overcome in the coming years. The state’s low unemployment rate is a testament to how tight the labor market is. The continued above-forecast tax revenues point to possible tax reforms in the future to allow taxpayers to keep more of their money. But regardless of what perspective you want to take on these figures, one thing everyone can agree on is that it is much easier in state government when you aren’t fighting a revenue shortfall – which should not be the case in Nebraska for the next few years.