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Recent editorials published in Nebraska newspapers
Question of the Day
Scottsbluff Star-Herald. Feb. 16, 2014.
Tax cuts: Realities make them easier to promise than to deliver
Since nobody likes taxes, the obvious solution is to do away with them. The only obstacle to doing so immediately is, well … it would be an economic disaster.
Politicians who clamor endlessly about taxes seem to forget that representative government is expected to get a few things done, such as building roads and educating children. Unlike the federal government, which can cut taxes without regard to spending, Nebraska requires a balanced state budget, which means weighing the value of government-financed services against the benefit of tax cuts.
In traditional fashion, some politicians proclaim that tax cuts for wealthy citizens and corporations will conjure up new jobs, although evidence that it works is hard to come by. Recently, Gov. Dave Heineman stepped around that challenge by saying that any job growth resulting from income tax cuts is worthwhile.
“Every time we can put even one person to work, I think it’s helpful,” Heineman told the Omaha World-Herald, in response to a question about a University of Nebraska Bureau of Business Research report released last week. The report recommended steps to “modernize” the state’s tax system, including lowering the state’s top income tax rate to below 6 percent. It estimated that the cuts would create 120 to 130 new jobs a year.
The same report also recommended taxing groceries.
With an eye on the state’s $700 million cash reserves, which has swelled because of a rebounding economy, business groups want individual and corporate income tax rates cut. The Legislature is looking at a tax cut proposal, LB 1097, backed by the Omaha and Lincoln chambers of commerce.
The top income rate in Nebraska is 6.84 percent. If you’re a single person making more than $27,000 a year, you’re already paying at that rate, right alongside the state’s millionaires. But tax-cut supporters note that’s higher than the rate of any neighboring state except Iowa. They’d lower the rate to 5.9 percent after three years and have it kick in at $36,000 for an individual and $72,000 for a couple.
Once lawmakers got a look at the potential consequences, it didn’t look like such a great idea. The estimated impact of the tax cuts came in at $645 million annually, about 16 percent of current state spending. That would lead to deep cuts in spending on public schools, higher education and social services, and shifting costs to cities and counties.
“The required annual budget cuts would be equivalent to the salaries of more than 11,000 teachers,” said Renee Fry of the Lincoln-based Open Sky Policy Institute, which has done studies of its own that found no proof that income tax cuts spark economic growth. Fry said 61 percent of the tax cut benefits would go to the top 20 percent of income earners. The bottom 40 percent of wage earners would get 7 percent of the benefits. She didn’t indicate whether that would be enough to cover grocery taxes, perhaps because that idea’s a non-starter, too.
A couple of our neighboring states have no income tax at all. At one point Heineman suggested eliminating the income tax entirely and replacing it with revenue earned by eliminating a smorgasbord of exemptions from the state’s sales tax. The same business groups blanched. What they had in mind was lower income taxes AND sales tax exemptions.
The fact is, Nebraskans pay high property taxes compared with the rest of America. When a Tax Modernization Committee went around the state asking for ideas about tax relief, members got an earful about that, said Sen. Galen Hadley of Kearney, chairman of the Tax Modernization Committee as well as the Revenue Committee.
“We did not hear from common citizens that they were paying too much income tax,” he said, “but we did hear that they’re paying too much in property taxes.”
The state could ease that burden by picking up more of the tab for K-12 education. This week, the Appropriations Committee plans a hearing on raising the property tax credit to landowners, a direct way for the state to deliver property tax relief. Money for that won’t be available if the state guts the cash reserve or lowers future income tax rates.
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