Nebraska Department of Revenue predicts federal bill will cost state government more than $406 million over four years
By:Erin Bamer
Nebraska Examiner
LINCOLN — A report from Nebraska’s Department of Revenue projects that the federal budget reconciliation bill will cost state government more than $216 million over the next two years.
The department released the analysis as part of a state law that requires it to report to the Nebraska Legislature within 60 days of a change to the national Internal Revenue Code. Congress’ ‘One Big Beautiful Bill’ that passed on July 4 was the subject of Tuesday’s report.
DOR’s analysis spanned the next four fiscal years ending in 2029. It surmised that the expected losses in corporate and individual income tax revenue will cost Nebraska more than $406 million over those four years. Within the two years that make up the existing biennial budget, the losses would equal roughly $216 million.
This will likely dent the state budget, but the projected impact won’t be clear until Nebraska’s Economic Forecasting Advisory Board next meets in October. Legislative Fiscal Analyst Keisha Patent said the board will consider this report, along with several other factors, including the state’s monthly tax receipts, when making state revenue projections.
At the board’s last meeting in July, members confirmed suspicions that Nebraska was back in a projected budget deficit to the tune of about $95 million. That, combined with Gov. Jim Pillen’s stated intent to cut Nebraska’s budget by up to 10%, will make finding revenue to support other measures like tax relief more difficult, according to Appropriations Committee Chair State Sen. Rob Clements of Elmwood.
Though the revenue losses were about double what he was expecting, Clements said even if the department’s predictions are accurate the budget will still be “manageable.” He noted that the last two months of tax receipts have been higher than the board’s projections and argued that Pillen’s budget goals could help find savings to offset the new losses.
“There’s no need to panic at this time,” Clements said.
The department’s report details the fiscal impacts of some specific measures within the federal reconciliation bill. The largest impacts to Nebraska come in corporate income tax revenues, where the bill expands several existing tax deductions and credits for businesses.
Within the current budget cycle, these changes could cost Nebraska over $140 million in lost tax revenue, according to the report.
Individual income tax losses make up a smaller but still sizable part of the impact, totaling more than $75 million over the budget’s two-year cycle. The bill similarly adds and expands several tax relief measures for individuals, including increasing the federal child tax credit, for example.
The report does not touch on the changes to Medicaid, as that does not have a direct impact on tax revenue, DOR spokesman Patrick Roy said. Patent said the budgetary adjustments made in response to these changes likely wouldn’t happen until the state’s next two-year budget.
Despite the coming challenges, Clements said property tax relief still remains a top priority for himself and the governor. Pillen spokeswoman Laura Strimple said the report proves that the federal bill is already providing tax relief to Nebraskans.