Economists suggest Nebraska does have an outdated tax system that if modernized could spur economic growth into the future.
Economist Eric Thompson, Director of the Bureau of Business Research at UNL, says taxes must account for the mobility of capital and labor.
“A tax code that may have worked 20 or 30 years ago reasonably well when resources were less mobile starts to become a problem in the modern economy and needs to be adjusted,” Thompson says. “And we suggested some straight-forward approaches for doing that.”
The Omaha and Lincoln Chambers of Commerce have unveiled a couple of studies they commissioned as the Unicameral considers tax relief this session.
One of the studies was produced by the Bureau of Business Research. The other came from University of Creighton Economist Ernie Goss.
Thompson and fellow UNL Economist John Anderson suggest flattening state income tax rates and broadening the sales tax.
Thompson says even an adjustment that doesn’t bring in any extra revenue to the state could spur modest job growth. The study recommends folding four personal income tax brackets into two, with a bottom tax rate of 2.5% and a top rate of 5.5%. The corporate income tax rate would be divided in two with a low rate of 3% and a top rate of 5.5%.
The adjustments to the income tax rates would bring in $459 million less each year.
That loss would be offset with the elimination of the sales tax exemption for food, prescription drugs and medical equipment, and the elimination of the real property tax credit.
A more modest proposal was also made in the study.
The study by Goss recommends lowering the state income tax rate by 5% each year for the next five years, eliminating the tangible personal property tax, limiting the growth of state aid to local governmental units to the growth of population and consumer prices, and getting rid of tax breaks provided to services offered by non-profits that compete with private business.
Goss says Nebraska needs a system oriented toward the future, not the past.
“Now, in terms of what’s doable in the legislature, typically you get less than what the economists recommended and I hope we get a part of it anyway,” Goss says.
All three economists suggest a modern tax system needs to broaden the base of goods and services taxed, which would allow for lower rates. The best tax system, according to the economists, taxes consumption more and production less.
AUDIO: Brent Martin rep0rts [:50]