Can Tax Reform Make Nebraska Less Boring?
- Oct 15, 2013 | Gail Cole
Bellevue, Nebraska, was ranked the 37th best small city to live in the United States in 2012 (CNN Money). The town of Papillion is often named one of the best small towns in the country to raise a family. Yet in spite of these and other kudos, Nebraska does not leap to most minds when folks are asked, “Where do you most want to live?” Some even say that Nebraska is boring.
Boredom may be a state of mind, and it may be that some parts of the world lack much in the way of external stimulation.
Tax reform could help
The Tax Foundation recently released a report on Building on Success: A Guide to Fair, Simple, Pro-Growth Tax Reform for Nebraska. In its summary, the authors note that “Nebraska has many strengths: an enviable employment rate, a fiscally responsible state government, good transportation infrastructure, a diverse array of successful businesses, and a deserved reputation for honesty and hard work.” That said, they call for tax reform based on conversations with “business leaders, policymakers, and other stakeholders in the state,” which revealed “strong concerns” about the following:
- High income and corporate tax rates (lead to sticker shock among recruits to the state);
- Generous tax incentives needed to counter high corporate tax rate, “a vicious circle;”
- Property taxes, especially on business equipment; and
- “Nebraska needs every advantage it can to overcome the cultural bias against the Plains states (perception that they are not exciting and productive places to live and work.”
Part of the proposed tax reform involves sales tax. According to the study, it’s a problem that in Nebraska:
- Sales tax applies to business inputs, distorting the market; and
- Sales tax does not apply to services at the expense of goods.
Regarding the first point: taxing business inputs can lead to tax pyramiding, rarely seen in a positive light.
Regarding the second point: the services that are becoming a greater share of Nebraska’s economy are mostly exempt from sales tax. Only “33% of what Nebraskans buy and see are subject to sales tax.” As a result, in order to raise necessary sales tax revenue, the rate of sales tax must rise. Nebraska already has the 26th highest rate of combined state and local sales tax in the nation.
It is “politically difficult” to expand sales tax to services--just ask the Massachusetts lawmakers who approved a tax on sales of computer software and services and then rushed to repeal the tax in the face of public outcry. Generally, when the subject of expanding sales tax to services is broached, the “defenders of exemptions mobilize to protect them, and are able to point out the injustice of being singled out while lawyers, accountants, real estate agents, etc. continue to offer tax-free services.”
Perhaps, the study suggests, the solution is in “expanding sales tax to multiply industries at a time….”
A shaky call for reform
The Tax Foundation is not the only voice for Nebraska tax reform. In early 2013, Governor Dave Heineman (R) supported a number of tax reforms, such as expanding the sales tax base and eliminating income taxes. However, strong concerns from lawmakers, farmers and other residents led him to withdraw his support shortly thereafter.
The Nebraska Legislature has “set up a process to consider tax reform proposals,” which are due at the end of 2013. The study put forth by The Tax Foundation, an “independent, non-partisan organization providing sound research and analysis on federal and state tax policy,” may prove a useful resource.
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