Gov. Dave Heineman’s unsuccessful proposal in the last legislative session to significantly reduce or eliminate Nebraska’s income tax sparked serious discussions about revamping the state’s tax code.
The Legislature called for the deliberate study of tax options now underway. Its Tax Modernization Committee, which met for the first time this week, is to offer its analysis before the next session.
But with state tax collections continuing to exceed projections, the committee should embrace the rare gift of good timing. The moment is ripe to do more than just tinker around the edges of tax reform.
Committee members and those who plan to testify before the group should seize this good economic fortune and be bold with their ideas. There is an opportunity here to design a better, 21st-century tax system that acknowledges the shift toward services.
The goals of reform, as this newspaper stated before, should center on what’s best for economic growth, what’s best for taxpayers and what leaves the state with predictable, reliable revenue streams.
It remains true that tax revenues, like personal and business incomes, are subject to economic booms and busts. Still, Nebraska’s cash reserve is set to grow to a record $679 million, a healthy far cry from the days, in the early 2000s, when legislators spent deep into the state’s rainy-day fund.
The cash reserve should easily eclipse the $600 million mark that longtime legislative observers have described as a sensible cushion, given the state’s $7.8 billion budget. To reach this point required spending discipline from the Legislature, its Appropriations Committee and the governor. A strong agricultural sector helped during the economic downturn, too.
If these positive revenue trends continue, doom and gloom warnings about the need to park future excess revenues in the cash reserve instead of weighing the possibility of tax cuts could prove unwarranted.
Still, it’s important that the governor and Legislature maintain their fiscal discipline in the face of increased calls for more spending on programs new and old. Meaningful, lasting tax changes could require more discipline with taxpayer money, not less.
It is also important that the Legislature’s tax committee approach its job with the idea that whatever tax reforms survive its scrutiny contain the kind of tax and revenue changes that the state and its people can absorb. Changes that must be quickly reversed would do more harm than good.
Senators know stability and predictability are vital. They also know the rarity of the situation they get to address. While many parts of the national economy are recovering slowly and many states are digging their way out from mountains of debt, Nebraska’s budget is balanced and in the black.
The state is once again positioned strategically to take action that will improve its economic competitiveness. That is a reflection of leadership — and of a people who value growth in jobs and business.