What Republicans Have Learned from Their Tax Cut Debacles: Nothing

AP Photo/Nati Harnik

Nebraska Governor Pete Ricketts delivers his annual State of the State address to lawmakers in Lincoln

Less than two weeks into the new legislative session, Nebraska lawmakers already look to be moving full speed ahead on enacting corporate and top-rate tax cuts—even amid an ongoing budget shortfall that has resulted in severe spending cuts to state services.

During his State of the State address on Wednesday, Nebraska Governor Pete Ricketts introduced the preliminary framework for a tax plan that would see the state’s top corporate and income tax rate cut twice over the next two years. The address marked what will be a second attempt by the governor at passing a tax reform bill after a plan he sponsored fell six votes short of passing the state’s Republican majority unicameral legislature last year, thanks to opposition from Democrats and some moderate Republicans. This bipartisan group of dissenters felt the bill didn’t do enough for farmers and low-income constituents who have faced surging property taxes at a time when the state’s agriculture economy has been struggling. (Nebraska’s legislature is officially nonpartisan, but nearly every member is affiliated with one of the two major political parties.)

The renewed push for lower tax rates comes in the wake of tax revolts in Kansas and Oklahoma, where two trickle-down experiments collapsed, resulting in anemic economic growth, cutbacks to vital services and burgeoning budget crises. For many following the developments in Nebraska, it seems as though Nebraska Republicans and Governor Ricketts haven’t fully learned from mistakes made in those red states.

“There was a serious backlash in Kansas and Oklahoma against tax cutters when things got bad,” says Renee Fry, executive director of the OpenSky Policy Institute, a Nebraska-based think tank. “I’m honestly surprised that there’s so much interest in pursuing these tax cuts after such political fallout.”

In Nebraska, as in almost every other state, the state constitution requires a balanced budget. That’s made reforming the tax system difficult for legislators. Nebraska’s current tax code is an already fairly regressive one where the poorest 20 percent of Nebraskans pay an average of 10.9 percent of their annual income, while the top one percent pay only 6.3 percent of theirs, according to the Institute of Taxation and Economic Policy. Meanwhile, the state’s worrying dependence on property taxes for K-12 school funding has increased over the years due to sharply rising land values, making any sort of property tax cut impossible without shifting the burden to some other revenue source.

Governor Ricketts has sworn off raising taxes to make up for budget shortfalls—the current shortfall is $200 million for the two-year period ending in 2019—and has instead turned to state services. State spending growth has been drastically reduced during Ricketts tenure, from 6.5 percent a year to 3.6 percent during his first budget cycle, and all the way down to a near flat 0.6 percent in the latest budget. Under the Ricketts’s new plan, most state agencies would face across-the-board cuts.

The University of Nebraska-Lincoln, the state’s main talent pipeline, will face approximately $100 million in funding cuts between 2017 and 2020, according to State Senator Burke Harr of Omaha, a member of the Revenue Committee.

“Over the last eight years, it feels as if we’ve been keeping the place together with duct tape,” says Harr, who led the opposition to the governor’s tax bill last year. “It would be different if these tax expenditures were going towards infrastructure or towards investments in the university.”

Although Ricketts’s proposal last year included a revision of the state's method for valuing agricultural land, the heart of the 2017 bill was a top-rate cut to the Nebraska’s corporate tax and income tax, the largest single source of revenue for the Cornhusker State. According to an Open Sky analysis of the plan last year, about 79 percent of the income tax cut would have gone to the wealthiest 20 percent of Nebraskans, with about 30 percent going to the wealthiest one percent, who on average earn approximately $1.6 million annually.

Ricketts’s new proposal features slightly more modest tax cuts than last year’s package and includes new investments in workforce development and a recommendation to increase in child welfare funding. The plan also creates refundable income tax credits for homeowners and agricultural landowners, limited to Nebraska residents—a clear attempt at appeasing rural factions of the legislature that played a large part in sinking last year’s bill.

Property taxes have been and will surely continue to be a flashpoint in the debate over tax reform in the coming months. Last month, while lawmakers were gearing up for this new legislative session, a contingent of agricultural and business organizations took matters into their own hands, launching a petition drive for a ballot measure that would provide an estimated $1.1 billion in annual property tax relief. If the petition receives enough signatures, Nebraskans would have a chance to vote on the proposed law during November’s general election. The petition drive has alarmed lawmakers of various political stripes, including the governor, whose own proposals could be threatened by the initiative.

Some observers had hoped that the threat of the budget-bursting ballot measure might have put Ricketts’s tax-cutting aspirations on hold. Not quite.

The new, and short, legislative session, which ends in April, will allow the governor one more go at this high-wire act.

“Governor Ricketts has to keep funding for education, prisons, and health services adequate while at the same time keeping the Chambers of Commerce happy and cutting property taxes to keep Ag [agriculture and landowners] happy, and still somehow not turn into Kansas,” says Harr.

“It’s certainly a narrow street to drive,” he adds.

Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives’ age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren’t made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.

This article has been updated. 

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