As Nebraska legislators consider reforming the state’s tax system, the leaders of a non-partisan fiscal research group say tax policy needs to be modernized.
Renee Fry, executive director of the Open Sky Policy Institute, says common sense is sometimes forgotten in how the state taxes various goods and services.
“We tax a night at the movies but we don’t tax a day at the spa,” Fry says. “We tax rental cars but we don’t tax using a limousine with a driver. There are all of these inconsistencies in our tax code because our tax code is based in the 1960s.”
State lawmakers advanced a measure this session to fund a study of Nebraska’s tax climate and system. Governor Dave Heineman, who initially proposed eliminating or cutting personal income and corporate taxes, supports the study.
Fry says the Governor’s plan would have raised taxes for most Nebraskans.
“I think it’s really important — you want to have an income tax, sales tax and property tax,” Fry says. “You want that three-legged stool and you want it to be as balanced as possible. Right now, it’s actually pretty out of whack. We’re at about 38% property tax and income tax is at about 23%. We’re pretty heavily reliant on property tax which is a big concern of ours.”
Fry says the state has significantly cut funding to local governments — counties, cities and schools — in fact, cutting funding to schools by $100-million in the past two years. The tax burden is being shifted, she says, from income and sales taxes to property taxes.
Fry says local governments are likely to see more pressure on their budgets as federal spending cuts are made, and less money comes back to the states.
Governor Heineman has often said local governments need to control their spending to reduce property taxes, but Fry says local governments are already being frugal.
“Those local governments aren’t spending more,” Fry says. “They have actually have been reducing those levies but it is shifting who’s paying from ag to residential as ag is going up and residential is staying flat or even decreasing. That’s something to be concerned about.”
The institute cites research refuting a direct correlation between cuts in corporate and personal income taxes and the level of growth in a state.
Fry says tax climate isn’t often cited by companies considering a move. She said it’s more likely to be labor force, cost of utilities and good transportation.
The Open Sky Policy Institute has been holding meetings with chambers of commerce across Nebraska to get input on tax and spending issues.
By Doug Kennedy, KWBE, Beatrice