Grow Nebraska’s Workforce with Tax Reform
Even with a state unemployment rate of 3 percent, job creation and tax reform matter in Nebraska, perhaps now more than at any other time.
Employers across our state can attest that we have workforce shortages in Nebraska. While this tight labor market has the short-term benefit of raising wages even for entry-level work, in the long-term, the state has less capacity to create new firms and higher-wage jobs than the country’s fastest growing states.
Over the last decade, states like Texas, Florida, Colorado, and Arizona led the nation in employment and population growth. They have attracted many fellow Nebraskans, in addition to people from all over the world, to participate in their state economies.
Meanwhile, Nebraska lagged behind the national average employment growth rate at 0.80 percent, while our rivals surpassed one or even two percent annual growth. That may not sound like a big difference, but over time these gains multiply. Cumulatively, these percentages add up to results like Florida overtaking New York as the country’s third largest state.
Policymakers cannot address a workforce shortage in Nebraska without improving the conditions that attract a larger workforce population. If the keys to attracting people to Nebraska were government spending and incentives programs, Nebraska would have more higher-paying jobs and less migration out of the state. Tax reform is an important part of the solution to Nebraska’s labor market problem, as evidenced from what other states have experienced.
While some critics of tax reform believe nature and geography are bigger disadvantages for Nebraska than tax policy, a new study of California found that weather isn’t everything. In the last seven years, nearly 9,000 California companies have either moved their headquarters or moved projects to out-of-state locations. Why? They are fleeing the hostile high-tax business environment.
The study found that the top ten states where these businesses are relocating are Texas, Nevada, Arizona, Colorado, Washington, Oregon, North Carolina, Florida, Georgia, and Virginia. Firms leaving California for these states have reported operating cost savings of up to 35 percent. Corporations in particular have a responsibility to their shareholders and clients to keep costs low, and if moving to a lower cost state is the answer, it is clear that is what most companies will do.
One of the states enacted comprehensive tax reform in 2013. My former home state of North Carolina was once the highest-tax state in the southeast. With many jobs and businesses choosing to go to neighboring states for lower taxes and regulation, North Carolina relied heavily on tax incentives to attract investment. But the Great Recession hit North Carolina hard with many businesses choosing to close or downsize, causing unemployment to reach double digits. After government spending proved an ineffective solution, the state changed course and looked to tax reform.
Among the major changes North Carolina made were replacing the state’s graduated rate personal income tax with a lower flat rate, and lowering the corporate income tax through a series of steps triggered as state revenue collections saw increases. To help simplify its tax system, North Carolina broadened the sales tax base and eliminated special tax breaks and loopholes.
A short two years after the policies were implemented, Forbes ranked North Carolina as a top 10 state for job growth, and the state was ranked 9th in job creation. Revenues are up, and these gains have allowed the state to further reduce tax rates for individuals and businesses.
It is clear looking at these two examples that high taxes drive business out of states like California while states like North Carolina benefit from lower taxes. Nebraska is in a great situation to take lessons from these states and enact meaningful tax reform. Taxes are a major component of a thriving and successful business environment. It will be up to today’s policymakers to pass reforms that can help future generations of Nebraskans find and create better opportunities here at home, rather than in another state.