A recent Pew Center study says the “fiscal cliff” could result in higher tax revenues for at least 30 states, including Nebraska.
By Deena Winter | Nebraska Watchdog
LINCOLN — As the United States approaches the so-called “fiscal cliff,” Nebraska families should gird themselves for tax increases.
The only question is the size of the increases.
The Budget Control Act of 2011 calls for a series of automatic tax hikes and spending cuts Jan. 1, unless Congress and President Obama can make a deal that averts them. If that doesn’t happen, the payroll tax will go up 2 percent, some business tax breaks would end, the Bush-era tax cuts will expire and Obamacare tax hikes will begin.
In addition to what Nebraska Sen. Mike Johanns calls the largest tax increase in American history, the law calls for more than $1 trillion spending cuts to more than 1,000 federal programs. Some say the combination could push America off the so-called fiscal cliff and back into a recession.
And while the tax increases and spending cuts would cut the nation’s debt in half, it could also cause the economy to contract and push the unemployment rate back up to more than 9 percent by the end of 2013, but shrink back to 5.5 percent by 2018, according to a report by the Congressional Budget Office. The CBO warns that if the Budget Control Act is kicked to the wayside, federal debt will continue to pile up to the point in which America could face a fiscal crisis affecting its ability to borrow money at affordable rates.
If a deal isn’t struck, Nebraskans could see their taxes increase by an average of $2,452, according to a report by the Heritage Foundation.
A report by the Pew Center on the States explored the impact the tax increases and spending cuts would have on each state, since federal and state funds are closely intertwined. The report says Nebraska is one of 30 states that would reap more revenue if federal income tax credits were reduced and business deductions reduced.
While the amount of federal spending in Nebraska on grants, procurement, salaries, wages and employees is below the national average, the number of federal grants Nebraska receives (as a percentage of state revenue) is slightly higher than the national average, at 7 percent.
Another study by the Tax Foundation, a nonpartisan, conservative think tank, says Nebraska would have the eight-lowest increase in the average family’s taxes from 2011 to 2013, at $3,289.
That’s the figure to which both Johanns and U.S. Rep. Jeff Fortenberry have pegged the impact.
“Make no mistake, the consequences of inaction are severe, and Nebraskans will not be immune,” Johanns says on a website his office set up to inform people about the fiscal cliff.
Fortenberry has said the shock to our still-fragile economy would be disruptive, stalling economic growth and causing the economy to shed jobs. He said there are more reasonable ways to curb overspending, but debt control must remain a focus.
“For the sake of our economy and long-term sustainability, we must regain fiscal balance,” he recently wrote in his regular “Fort Report” column. “We cannot do so solely through increasing taxes; raising taxes by 3.9 percent on the top 2 percent of American income earners would fund the government for just 10 days.”
U.S. Sen. Ben Nelson has been critical of lawmakers for failing to address the issue for the past year, noting that he voted against the Budget Control Act. But in a recent conference call with reporters, he was skeptical solutions could be found or entitlement programs reformed in one month.
The governor’s office referred questions about the impact on Nebraska to the congressional delegation.
Contact Deena Winter at deena@nebraskawatchdog.org. Follow Deena Winter on Twitter @DeenaNEWatchdog
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