Strong February revenues are indicator for tax modernization
Nebraska’s state tax revenues have posted strong positions just one year after the historic nationwide shutdown for the COVID-19 pandemic. According to the most recent Nebraska Department of Revenue news release, gross revenues for the month of February were $617 million or 24.2% above the certified forecast. However, the bigger surprise is that net revenues for February were $449 million, which is 96% above the certified forecast. This is partially due to less-than-expected tax refunds.
While being ahead of the forecast is good news, the real test is if these revenues are, dollar-for-dollar, more than what the state saw in previous years.
The revenues from February 2020 were $556 million gross and $315 million net. That is a $61 million increase in gross collections and a $134 million in net collections for the month.
The same can be said for the fiscal year net revenues. For the fiscal year, the state is experiencing a 15.4% increase in collections. That equates to $3.770 billion, which is nearly half-a-billion more than the $3.275 billion in collections it posted for the fiscal year in February 2020.
In fact, when you look at the breakdown, corporate income taxes are exceeding expectations by enormous amounts. February gross corporate income tax revenues are 145.5% above forecast, while February net corporate income tax revenues are 601.6% above forecast.
This may lead some in the Legislature to agree that it is time for tax modernization in Nebraska, and one area of focus should be the income tax, especially for corporations. When you have forecasts not able to accurately predict revenues there is an obvious balance issue. There is no reason with today’s data and technology that a forecast should be off by over 100%, let alone 600%.
You might recall that the Nebraska Revenue Forecasting Board just increased the expected tax revenues in last month’s meeting by an additional $204 million for the fiscal year. However, by law, only downward revisions are certified to the forecast. This means that the above comparisons are still based on the forecast the board set at its July 23, 2020 meeting.
It’s no secret that many of us have been pleasantly surprised how well the states and our nation as a whole have endured during this past year. Many thought a year ago when we saw unprecedented shutdowns that our economy was going to experience another Great Depression comparable to the 1930s. That said, it is important not to get too excited about these revenue projections because they are still being compared to the expectations of July 2020, when much uncertainty still existed about the vaccine and a second wave of the virus.
However, the good news is that Nebraska is continuing on the path to recovery. If the state continues to post strong revenue numbers, hopefully that will encourage lawmakers to undertake some long overdue tax modernization that involves reducing our high tax rates.