Tax Analysts Blog

A Solid, Albeit Mild, Tax Reform Proposal

Posted on Oct 9, 2013

The erstwhile folks at the Tax Foundation and the Platte Institute for Economic Research have a plan to fix Nebraska’s tax system. What exactly are the problems they’re trying to fix? The Tax Foundation and the institute identify plenty. They say Nebraska’s top income tax rate and corporate tax rates are high for the region, which they argue causes outward migration. High corporate tax rates lead to demands for tax incentives. Business property taxes are too high. And best of all, the groups assert that “Nebraska needs every advantage it can to overcome the cultural bias against Plains states (perception that they are not exciting and productive places to live and work).”

Basically, the Tax Foundation and the Platte Institute are arguing that Nebraska needs tax reform because, well, it’s boring. I have been to Omaha and Lincoln. If you think Nebraska is boring, you haven’t spent much time watching corn grow. Nebraska certainly never makes news on the tax front. Oh sure, legislators take a break from playing checkers and reminiscing about the glory days of Cornhusker football to grant tax incentives to corporations that don’t need them. But not a lot happens in Nebraska. And maybe that’s the point. I assume the Tax Foundation and the institute have a goal of spurring economic development through tax reform.

The primary plan is relatively straightforward. It is revenue neutral, reduces personal and corporate income tax rates, reduces incentives, expands the sales tax to more services, and simplifies administration. Moreover, belying the assertion that conservatives hate poor people, it doubles the earned income tax credit, greatly increases the personal exemption, and indexes the tax rates. In other words, the plan is consistent with virtually every notion of sound tax policy. It would make the Nebraska tax system fairer, simpler, and more conducive to retaining people and firms.

Variations of the plan would slash personal and corporate rates even more. They aren’t revenue neutral. But I don’t know where the idea that all tax reform must be revenue neutral came from anyway. Is the plan from the Tax Foundation and the Platte Institute perfect? No. It calls for more property tax limitations. Property tax limits are never good policy, in my opinion. And of course, I would not only reduce corporate rates (and corporate tax incentives), I would end the tax and the incentives. But the plan is pretty darn good.

Earlier this year, Nebraska Gov. Dave Heineman (R) pushed for far more radical reforms than those proposed by the Tax Foundation. He offered lawmakers a choice between two proposals. One would have eliminated all income taxes and $2.4 billion in sales tax exemptions. One would have eliminated the corporate income tax and approximately $400 million in sales tax exemptions. The bills would have eliminated all existing exemptions for tangible personal property, including business-to-business purchases. Neither idea made it out of committee. The Heineman plan was bolder. But the Tax Foundation/Platte plan can and should be enacted.

Read Comments (1)

emsig beobachterOct 9, 2013

A high marginal tax rate, offset by credits to keep existing, and attract new
sources of mobile capital may not be bad tax policy for a state. There is
little reason to give incentives to keep and attract immobile capital -- it
isn't going any where. I'm usually in favor of uniformity in taxation, but
attracting mobile capital may just be what Nebraska needs. Of course, changes
to state taxes will really have only a marginal impact, but it keeps economists
and policy analysts employed.

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