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

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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 taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. 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 taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. 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 taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source 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.