State Budgets

Cornhuskers Need Not Fear Tax Reform

Earlier this month opponents of tax reform released a 13-page publication cautioning Nebraska against following in the footsteps of its southern neighbor, Kansas. While the report does accurately note the severity of Kansas’ continued budgetary woes, it wrongly blames the state’s landmark tax reforms of 2012. In truth, Nebraska legislators have no reason to fear pro-growth reforms.

The publication, Kansas’ Self-Inflicted Budget Wound Continues to Bleed Out, Providing a Cautionary Tale for Nebraska, claims Kansas “has demonstrated that simply cutting income taxes does not create economic and job growth; it only creates and worsens a wide range of issues.” However, Kansas failed to balance tax cuts with any significant decrease in spending, and spending in Kansas has continued to outpace inflation by wide margins. Additionally, the 2012 tax reforms did not pass with revenue-raising offsets as Governor Sam Brownback intended, due to an uncooperative Kansas Senate. The experience of Kansas fails to discredit the general merits of pro-growth reform. States like North Carolina have flourished after embracing both tax relief and restraints on spending.

Nebraska Chamber of Commerce President Barry Kennedy recently penned an opinion piece detailing problems related to the state’s uncompetitive tax structure, offering possible solutions: “Despite opposition from tax-and-spend interests, if Nebraska wants to attract and retain young talent and keep its retirees, state leaders must find a way for individuals and businesses to keep more of their own money.”

Kennedy expressed concern over the state’s highest marginal income tax rate of 6.84 percent, the highest in the region with the exception of Iowa. Even more alarming, this top tax rate kicks in with incomes starting at $29,000. Nebraska’s top marginal corporate tax rate is also second-highest in the region at 7.81 percent. These numbers have resulted in one of the most uncompetitive business tax climates in the region, as reported by the Tax Foundation.

According to the ninth edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, Nebraska ranks in the bottom half of states in terms of economic outlook due to a number of its economic policies, including top marginal personal income tax rate, top marginal corporate income tax rate, inheritance tax and overall property tax burden. Further, there are 630 public employees per 10,000 Nebraskans, which is the sixth-highest ratio of public employees in the nation. State spending has nearly doubled in the last 15 years, with outlays of $5.8 billion in 2000 and nearly $11 billion in 2015, far outpacing inflation. Despite attempts by tax-and-spend groups to convince Nebraska’s taxpayers otherwise, policymakers have a golden opportunity this legislative session to cut down on government waste, reform the state’s tax code and prioritize the delivery of public services in a more efficient manner.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

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