Personal Property Tax Reform Could Relieve Slump in Economic Growth

Earlier this month, we discussed that resting on our laurels could become a weakness for Nebraska’s fiscal health and economic outlook.

Seemingly to prove this point, Nebraska’s economy just took another hit to its otherwise solid reputation for growth.
 

According to the Bureau of Economic Analysis, in the first quarter of 2017, Nebraska ranks as the worst state in the nation for Gross Domestic Product (GDP) growth, the most common measure of economic growth.

Instead of growing, the GDP shrank by 4 percent from the fourth quarter of 2016. This is a significant change from last year’s overall positive growth rate of 1.2 percent, and state policymakers may face questions about what can be done to get the state economy growing again.
 

Among many reforms proposed in the recent legislative session, one that could do the most good is reducing the state’s personal property tax. This tax is levied locally against movable property used within a business, including computers, hand-held tools, work benches, and machinery.

The major issue with this tax is it discourages new investment on business infrastructure in Nebraska.

When a business buys a new piece of machinery to replace outdated or inefficient equipment, the tax becomes greater than when they had the older piece of equipment due to the depreciation of its taxable value. This makes it more costly for businesses to modernize and discourages investment into more efficient machinery.

Investments in equipment and machinery are necessary for Nebraska, or any economy, to experience GDP growth. That means the personal property tax is counterproductive to Nebraska emerging from its current rut.
 

The personal property tax is also impacting diverse sectors of the economy that are shrinking in Nebraska according to the Bureau of Economic Analysis. The tax paints with a broad brush on commercial businesses, farmers, and railroad infrastructure.

In 2016, the state collected over $217 million from the personal property tax. While this is a large sum, it only represents 5.5 percent of the total property tax revenue collected by local governments in Nebraska.

If the Legislature could provide a roadmap for reducing the personal property tax over time, it could reinvigorate investments that would be far more valuable for the state, especially for the hardest hit sector contributing to the slump: agriculture.
 

While hope remains that Nebraska’s economy will not continue to shrink for very long, it should be a wake-up call that tax reform focused on economic growth is still needed to help Nebraskans invest in their state.

Subscribe to our weekly email to find out about our upcoming report on the personal property tax.