July 27: Nebraska Taxes Income Much More Than Key Economic Rivals
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Contact: Adam Weinberg
Nebraska Taxes Income Much More Than Key Economic Rivals
OMAHA, NE (July 27, 2016) – U.S. Census Bureau data show that taxpayers in Nebraska face significantly higher tax rates and tax burdens on income and property per person than in states to which Nebraska is losing income and population: Texas, Florida, Arizona, Colorado, and Iowa.
In 2013, over 18,000 Nebraskans moved to these states, or 50 people every day of the year.
“Nebraska taxpayers who get tired of being ignored in the Legislature are voting with their feet and their pocketbooks instead,” said Adam Weinberg, Communications and Outreach Director at the Platte Institute for Economic Research.
While there are many reasons people move, trends nationally and in Nebraska show more people are choosing to live and work in lower-tax states that allow workers and businesses to keep more of what they earn. $3 billion of annual adjusted gross income has left Nebraska since 1992, mostly to the aforementioned states.
On average, taxes and spending in Nebraska are around 20 percent higher than in our competitor states. On the Tax Foundation’s 2016 Business Tax Climate Index, which evaluates both the cost and structure of the state tax systems Nebraska ranks 27, while Florida ranks 4, Texas, 10, Colorado 18, Arizona, 24, and Iowa 40 (1 being best, 50 being worst).
Removing Barriers in Nebraska Part Three: How Our Taxes and Spending Compare, is now available at PlatteInstitute.org. The full series and release schedule may be viewed at PlatteInstitute.org/GoodLife.
On average, taxpayers in Nebraska pay 52 percent more personal income tax per person, and 36 percent more corporate income tax. That’s $1,125 per person per year in Nebraska versus $541 in the five rival states for personal income taxes.
Residents in the comparison states pay more sales tax, but not by much. The difference is 8 percent per person, or $1,075 in Nebraska versus $1,164 in the other states. The main reason for this difference is that Texas, Florida, Arizona, Colorado, and Iowa rely more heavily on local option sales tax for local funding in lieu of property tax, on average, than Nebraska.
Nebraska collected $1,649 per capita in property taxes in 2016, while the five states averaged $1,303, a difference of 24 percent per person.
“Legislators should study these states Nebraskans are choosing for relocation to write a roadmap to comprehensive tax reform in Nebraska,” said Weinberg. “Nebraska’s current state and local sales tax base includes many arbitrary exemptions that could be rolled back to help reduce income and property tax rates and bring us closer to our state competitors.”
More details behind the data:
- Income tax is a less stable source of revenue than sales tax, and places greater burdens on economic growth through higher prices on saving, investment, and entrepreneurship. Currently, most of Nebraska’s general fund budget is funded with income tax.
- Growing the sales tax base does not mean raising the sales tax rate. Instead, policymakers should review which retail transactions are arbitrarily exempt from either the state or local sales tax. For example, laundry detergent is subject to sales tax, but dry cleaning services are not.
- Tax rates are higher in Nebraska because Nebraska’s state and local governments simply spend more than their counterparts in Texas, Florida, Arizona, Colorado, and Iowa. When averaging together our five competitor states, Nebraska spends 3 percent more at the state level and 29 percent more at the local level.
- Taken individually in rounded figures, Arizona’s total state and local spending per person annually is $3,300 less, Florida’s is $3,000 less, Texas is $2,600 less, Colorado spends $1,300 less, and Iowa spends $1,000 less.
- Evidence suggests piecemeal tax policies do not provide the same widespread economic benefits as a broad tax base with lower tax rates. Iowa, for example, does provide many tax exemptions that attract seniors and military retirees from Nebraska, and yet Iowa’s tax system has a similar need for reform and the state faces similar economic challenges to Nebraska.
- While lower than Nebraska in most cases in our comparison states, property tax is still an important part of collecting revenue locally, particularly in states like Florida and Texas that lack a personal income tax.
To arrange an interview with Policy Director Sarah Curry, contact Adam Weinberg at (402) 452-3737 or firstname.lastname@example.org.
The Platte Institute for Economic Research advances policies that remove barriers to growth and opportunity in Nebraska. To learn more about our research, view our recent articles, or subscribe to our weekly #PlatteChat column.