Tax revenue pays for a number of critical services throughout Nebraska including public parks, roads, schools, and social services. When considering making tax cuts, as suggested in LB 357 this 104th legislative season, it is important to ensure that the revenue lost from tax cuts does not result in cuts to essential services and particularly services for children. LB 357 is projected to create a budget shortfall of $419 million dollars. Ideally, tax cuts should be strategic to benefit those who need it most and accompanied by a plan to cover the financial loss so that we don’t have to slash funding for important services like education. As shown by the infographic below, the tax cuts proposed by LB 357 primarily benefit higher income individuals. For the lowest wage earners, the tax cuts would only be enough to buy a couple pounds of carrots.
Another aspect of tax revenue that is important to consider is whether the tax is regressive or progressive. A regressive tax is one that forces lower-income individuals to pay a higher fraction of their income than higher-income individuals. With progressive taxes, the fraction of income paid in taxes increases with a higher income. If Nebraska wants to support working families and those who most desperately need a tax break, it would be most beneficial to rely primarily on progressive taxes, such as income tax, for funding public services, social services, and education.
Another way in which Nebraska could significantly help working families is through tax credits. Introduced by Senator Bolz, LB 322 aims to increase the Child and Dependent Care Tax Credit as well as expand eligibility. The Child and Dependent Care Tax Credit is an income tax credit that reduces the amount of income tax a family must pay in order to help them afford child care while they work or look for work. In addition, LB 495, introduced by Senator Pansing Brooks, increases the state Earned Income Tax Credit, which also reduces the amount of income tax a working individual must pay, particularly for individuals with children. These tax credits provide significant help to working families in achieving economic stability. We need to ensure that tax cuts are well targeted to those who need them most and that we can reasonably address the cost of tax cuts without compromising the health and well-being of our kids.