In 2012, I helped author a bill to enact triggered income tax cuts - which are future tax cuts enacted when state revenues meet certain thresholds. The bill became law. Five years later, I find myself spending most of my time as a state legislator trying to clean up what I had a large hand in creating.
Since we enacted the tax cuts, Oklahoma hasn’t experienced the promised surge in economic growth. What we have experienced are large, persistent shortfalls that have led to drastic cuts to K-12 education and other vital state services.
As we prepared to pass the tax cuts, we worked with Art Laffer and other experts to design a tax-cut trigger we believed would be foolproof. As it turned out, we were wrong. I truly believed at that time that we needed to pass the tax cuts. I now realize we didn’t have all the information we needed to enact successful tax policy.
Furthermore, I am convinced that there is simply no way to account for everything you would need to know to create a safe tax-cut trigger that would only reduce taxes when it makes sense to do so. There is no way to predict or account for all the state, national and global economic factors that play into a state’s revenue stream.
For example, there was no way for us in Oklahoma to know that Iran would pump millions of gallons of oil into the black market and cause U.S. oil prices to plummet. The freefall in the price of oil had a tremendous negative effect on our state’s economy. However, because of the parameters we set in our tax-cut triggers, we cut taxes right as the economy tanked.
We were set to enact another triggered tax cut in 2017 as we faced a $1.1 billion state revenue shortfall. Thankfully we were able to muster enough votes in the Legislature to repeal the triggered tax cut and stave off additional budgetary damage.
I am now of the belief that by using tax-cut triggers, states are setting themselves up for failure because they are setting future policy on autopilot while not truly understanding what the future holds. That’s why I’d strongly encourage Nebraska lawmakers to resist calls to adopt triggered tax cuts.
Tax-cut triggers tie our hands as policymakers. They prevent us from making decisions in real time, and with the information we need to make policy choices that best serve our state and our constituents. Why would we use triggers, when every year we can make tax changes using current data that reflects the current state of affairs in our state?
I plan to keep an eye on Nebraska this year and hope your legislators will use more caution than we did. Taking a more prudent approach to tax policy can help your state avoid the persistent problems and damage that tax-cut triggers have wrought here.