Incentive tax credits (ITC) can influence the Nebraska economy positively, and those economic effects can, in turn, impact state revenue. Using a Computable General Equilibrium (CGE) model, the fiscal impacts of the program are estimated over the next ten years. This estimate is based upon completed and ongoing LB 775 projects, and ongoing Nebraska Advantage Act projects. These assumptions will be modified in the future with experience gained from Nebraska Advantage Act projects.
To analyze the fiscal impact of the tax credits, the dynamic Tax Revenue Analysis In Nebraska (TRAIN) model, a custom-built Nebraska CGE model, is used.1 With TRAIN, the Nebraska economy is divided into 74 distinct sectors in order to explicitly trace economic flows. The TRAIN model is constructed based on Walrasian general equilibrium theory, which assumes all markets adjust through price changes, so the TRAIN analysis works well for analyzing structural changes and their consequences in the long run, but not for dealing with short-term fluctuations.
TRAIN details state government sectors in order to capture the sensitivity of state government revenue and expenditure flows. TRAIN calculates most tax impacts within the model, without requiring additional calculations outside the model to obtain final results. This allows the researcher to avoid rigid assumptions that may deliver vague results.
TRAIN mathematically expresses the Nebraska economy with over 1,300 equations and a social accounting matrix (SAM) database. It has 28 industrial sectors, two factor sectors, an investment sector, nine household sectors, 33 government sectors, and a rest-of-world sector.
The critical assumption when constructing a general equilibrium model is that the initial condition of the economy is in equilibrium. Therefore, the model is constructed so that its equilibrium replicates observed data in the base year. The date for TRAIN is the latest SAM and parameters. The estimate of tax credits used is based on the history of the LB 775 program, and the first use of credits under Nebraska Advantage.
Future revenue gains and (losses) due to Nebraska’s tax incentive programs are estimated based on the analysis of historical LB 775 and Nebraska Advantage Act data, national forecasting analysis, and the TRAIN model. The possible revenue losses by tax credit claims are estimated mainly based on the analysis of LB 775 projects that includes 178 completed and 251 active projects, and nine active Nebraska Advantage Act projects. The LB 775 and Nebraska Advantage Act data contain information about the amount of earned tax credits, the amount of credit used by tax types, the amount of qualified investments, and the number of jobs. These data provide reliable indicators for future Nebraska Advantage Act tax credit claims. Because industrial investment associated with tax credit is influenced by the business cycle, US macroeconomic forecasts from IHS Global Insight are adapted for projecting business activity that generates the earning and use of incentive tax credits.
The table below provides two estimates of employment due to the Nebraska Advantage Act. The first, labeled “Estimated Number of New Jobs for Qualifying Tax Credits,” is an estimate of the number of FTE jobs that will be used to qualify for tax credits by year. The second estimate, “Estimated Net New Economic Job Increases (Decreases),” is an estimate of the total number of new jobs created as a result of Nebraska Advantage Act program investment. This number is smaller than the first number, which represents more of an accounting number of employees at a project, because a number of these jobs would have occurred without the incentive tax credits under the Nebraska Advantage Act. The second number includes both direct and indirect employment in Nebraska. That is, it includes both the direct new economic jobs at the projects and the indirect new jobs throughout the Nebraska economy that are created to support the new investment and direct employment due to the Nebraska Advantage Act.
1A more detailed description of the TRAIN model is available here.
Summary |
2010-111 |
2011-12 |
2012-13 |
2013-14 |
2014-15 |
2015-16 |
| Revenue generated by ITC |
$17,510,895 |
$23,870,617 |
$28,857,378 |
$35,356,491 |
$41,864,006 |
$47,958,178 |
| Tax Credits Used |
32,900,480 |
23,019,695 |
25,243,291 |
31,634,498 |
39,899,497 |
49,547,371 |
| Direct Sales and Use Tax Refunds |
8,814,299 |
8,721,494 |
14,206,816 |
18,794,279 |
23,136,345 |
27,131,229 |
|
Revenue Gain (Loss) Cumulative |
(24,203,883) |
(7,870,572) |
(10,592,728) |
(15,072,285) |
(21,171,836) |
(28,720,421) |
|
(41,626,540) |
(49,497,111) |
(60,089,839) |
(75,162,125) |
(96,333,961) |
(125,054,382) | |
|
Tax Credits Earned Tax Credits Recaptured Tax Credit Expired Tax Credit Balance |
79,055,041 0 0 74,636,021 |
55,416,352 0 0 107,032,678 |
60,430,610 0 0 142,219,997 |
78,964,159 0 0 189,549,658 |
96,757,686 93,169 0 246,314,678 |
111,630,687 198,188 0 308,199,806 |
|
Estimated Employment Estimated New Jobs for Qualifying Tax Credits Estimated Net Job Increase (Decrease) |
1,585 373 |
2,193 970 |
3,436 1,857 |
4,016 2,784 |
4,545 3,618 |
4,945 4,363 |
Summary |
2016-17 |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
2021-22 |
| Revenue generated by ITC |
$53,221,193 |
$57,760,094 |
$61,904,385 |
$65,884,453 |
$69,382,657 |
$73,099,483 |
| Tax Credits Used |
58,972,820 |
69,201,618 |
80,131,312 |
91,456,799 |
102,966,468 |
114,287,790 |
| Direct Sales and Use Tax Refunds |
31,122,833 |
35,041,760 |
38,794,133 |
42,566,437 |
46,418,586 |
50,261,504 |
|
Revenue Gain (Loss) Cumulative |
(36,874,461) (161,928,843) |
(46,483,284) (208,412,127) |
(57,021,061) (265,433,188) |
(68,138,783) (333,571,971) |
(80,002,397) (413,574,368) |
(91,449,811) (505,024,178) |
|
Tax Credits Earned Tax Credits Recaptured Tax Credit Expired Tax Credit Balance |
124,816,516 221,598 0 373,821,904 |
138,247,834 245,443 43,094 442,579,583 |
151,476,654 268,930 143,800 513,512,194 |
163,615,758 290,481 1,209,943 584,170,728 |
175,016,701 310,722 1,775,676 654,134,564 |
185,922,577 330,085 1,244,721 724,194,545 |
|
Estimated Employment Estimated New Jobs for Qualifying Tax Credits Estimated Net Job Increase (Decrease) |
5,354 5,034 |
5,839 5,614 |
6,296 6,100 |
6,678 6,519 |
7,023 6,903 |
7,338 7,280 |
| 1Figures for FY 2010-2011 are actual amounts. |