Nebraska collects $1 billion more in tax revenue than expected
The Nebraska Department of Revenue has released the June 2021 state tax revenue report. This report is especially important because it includes figures for the last month of the fiscal year, which runs July 1 to June 30.
For the month of June, all major tax categories were above the forecasted amount for both gross and net revenues while refunds were below the forecasted amount. Net revenues were 22% above the certified forecast, with the state collecting $105 million more than expected for the month.
When we look at the fiscal year, the state has collected nearly $6 billion in tax revenue, which is about $1 billion more than the forecast of roughly $5 billion.
- Sales and Use: 13.9% or $244.7 million above forecast.
- Individual Income: 20.1% or $524.1 million above forecast.
- Corporate Income: 39.9% or $162.8 million above forecast.
- Miscellaneous: 12.2% or $26.8 million above forecast.
While this is much more than the state anticipated, the way the state reports forecasts and revenues are a bit misleading and is worth pointing out. At its April 29, 2021 meeting, Nebraska Economic Forecasting Advisory Board revised its forecast upwards by $90 million, to $5.580 billion, in comparison to its February 26, 2021 meeting, when the projection was set at $5.490 billion. According to Nebraska law, only downward revisions to the forecast are certified, so the comparisons made in this most recent release are based on the forecast done at the August 14, 2020, meeting.
That is why the best and most accurate measure of the state’s true revenue position is to compare to the previous year’s actual tax collections. Thankfully, LB180 was enacted this year and we can expect to see more accurate and realistic revenue reports in the near future, since this legislation goes into effect three months after adjournment of the 2021 Legislature, which was on May 27.
LB180 requires the Tax Commissioner to amend the monthly revenue report to include the most recent forecast, not just the certified forecast, as well as comparing it to the same month for the previous fiscal year. The Platte Institute supported this piece of legislation in written testimony.
However, since LB180 is not in effect yet, below is the comparison to last year’s actual fiscal year collections by tax type.
As you can see, even through the forecast has the revenue being nearly $1 billion, or nearly $400 million more than expected (depending on which forecast you base your comparison), the state in real terms collected more than $1 billion in additional revenue compared with last fiscal year.
This means that even in the wake of a nationwide shutdown, uncertainty about supply chains across multiple industries, directed health measures not allowing businesses to operate at full capacity, growing inflation, increased unemployment, and a number of other factors that should have negatively impacted Nebraska’s economy–the state still posted one of the best fiscal year revenues in recent history.
The question now needs to be, when will Nebraska lawmakers realize they have the means to enact a comprehensive tax reform plan? There is no reason for Nebraska’s forecasts to be so inaccurate. For years, the sales tax has been the most stable and easy to forecast tax, whereas the corporate and personal income have been the most volatile. This is not a unique occurrence; it fits in with economic theory, and is the basis for the Platte Institute advocating for a broadening of the sales tax base, to help reduce Nebraska’s reliance on taxes impacting the workforce and housing, like the income tax and property taxes.
In addition, that extra billion dollars the state collected came from the hardworking people and businesses of Nebraska. Reducing tax rates and letting Nebraskans keep more of this money is a critical step to strengthening Nebraska’s economic recovery in the decade to come. Modernizing our tax code will make our revenue more predictable for policymakers and remove barriers to providing the opportunities and amenities that allow our state to grow.
Learn more about tax reform in Nebraska with these Platte Institute resources: