Report On State Tax Incentives Show Costs Outweigh Benefits

Paul Hammel, Nebraska Examiner:

November 4, 2022

LINCOLN — The projected tax breaks provided by a major state economic incentive program far outstrips the tax revenue benefits of the program, a new state Revenue Department report indicates.

The estimated tax credits to be provided via the Nebraska Advantage Act in fiscal year 2022-23 was $93.4 million greater than the tax revenue generated, the report indicated.

The data, detailed during a report Friday to two committees of the Nebraska Legislature, prompted one state senator to call the program “a subsidy” rather than a job-creation incentive, and a state watchdog group to decry it a “drain” on state services.

‘It’s a subsidy’

“I’m not convinced it’s a winning proposition for the average Nebraska taxpayers,” said State Sen. Tom Briese of Albion.

It appears to benefit a small number of companies, and a small number of Nebraskans, he said.

“To me, it’s a subsidy,” Briese said.

Rebecca Firestone of the Open Sky Policy Institute said the report highlights concerns that economic incentive programs fail to pay for themselves and instead act as a “drain” on revenue to support schools, health care and other state programs.

Revenue loss ads up

The Nebraska Department of Revenue, Firestone pointed out, estimated that in 10 years, the Advantage Act will have a cumulative revenue loss of $1.4 billion.

But a Revenue official told members of the Legislature’s Appropriations and Revenue committees that the report doesn’t capture the secondary impacts of creating more jobs and economic investments in the state.

The annual “Nebraska Tax Incentives” report indicated that 4,582 “full-time equivalent” jobs were expected to be created in the current fiscal year, by companies using $146 million in sales and income tax credits.

Jen Creager of the Nebraska Chamber of Commerce and Industry, which has supported “performance-based” tax credits for businesses that create jobs, said the Imagine Act and other programs that provide tax incentives for job creation have helped “level the playing field” with other states at a time when Nebraska has a workforce shortage.

Helps expand economy

“Thirty plus years of these programs have increased the economic diversity and viability of Nebraska through new jobs and a broader tax base,” Creager said. “Look at Nebraska’s economy in the 1980s and look at Nebraska’s economy today.”

Sen. Lou Ann Linehan of Elkhorn, who chairs the Legislature’s Revenue Committee, which drafts state tax policies, said she’s always had questions about tax incentives. But, she added, they are necessary because of the state’s high income and property taxes.

State Sen. Lou Ann Linehan of Elkhorn(courtesy of Unicameral Information Office)

The state, Linehan said, would be much better off if it could lower income and property tax rates for everyone. Briese said he totally agrees.

The Advantage Act, passed in 2005, had served as the state’s main economic development tool until 2021 when an updated version called the ImagiNE Act went into effect.

Unpredictability

At Friday’s hearing, some senators touted the ImagiNE Act as an improvement, because it requires businesses to take their tax credits sooner, rather than waiting years to cash them in. Companies are able to take tax credits from the Advantage Act until 2051.

The unpredictability of when companies cash in their tax credits can cause havoc with crafting state budgets, said Gering Sen. John Stinner, the chairman of the budget-writing Appropriations Committee.

He said that in 2016, his committee was forced to cut millions in additional funds from the budget because companies had cashed in about $100 million in tax credits that had been earned via job incentive programs.

Overall, the Advantage Act has created 28,070 jobs and paid out $910 million in tax credits, the Revenue Department reported.

Lawmakers were told that so far, the state had received 77 applications for ImagiNE Act incentives, projecting that they would invest $643 million.

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