Building on Success: A Guide to Fair, Simple, Pro-Growth Tax Reform for Nebraska

 
 
October 03, 2013

Executive Summary

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. The state performs well—often in the top ten—in a number of broad surveys of economic performance and broad quality of life issues.

The key for tax reform, therefore, is to build on this success, to take what works and make it even better. One may ask though: why tax reform? If things are so good, why change?

Over the past several months, we have met and exchanged communications with business leaders, policymakers, and other stakeholders in the state. We heard strong concerns:

  • Nebraska’s top income tax rate and corporate tax rates are high for the region and for the revenue they collect. These rates cause “sticker shock” for recruiting talent to come to Nebraska and retaining talent to stay in Nebraska. Outward net interstate migration is not just anecdotal; it is supported by available data.
  • High corporate tax rates have led to increasing demands for generous tax incentives to counter the high corporate tax rate—a vicious circle.
  • Property taxes are a concern but there is strong support for retaining local control over local spending priorities. The property tax on business equipment is of particular concern.
  • 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).

Nebraska’s economic performance would make most states envious, but its tax system is middle-of-the-pack. From our review of economic and fiscal data, from our research on the economic efficiency of various tax structures, and from dozens of conversations with Nebraska stakeholders, we have isolated components of Nebraska’s code ripe for reform. Rather than providing another incentive or two for this or that favored group, the approach we outline would result in an equitable and simplified tax system for everyone that would promote longterm economic growth and boost job creation.

This report presents the details of these tax reform possibilities, developed specifically for Nebraska. These options would reduce the state’s high top individual income tax rate (from 6.84 percent to 5.5 percent), lower the uncompetitive corporate tax rate (from 7.81 percent to 5.5 percent), offer more meaningful relief from excessive property tax increases, and provide options for difficult sales tax reform.

Finally, we would like to express our gratitude to the countless officials, organizations, and individuals who shared their thoughts with us on the subject of Nebraska’s tax system, and the hospitality of Nebraska’s residents as we solicited that input.

Read the full paper below or download the PDF.

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