Tax legislation takes different approaches to economic competitiveness
As the Nebraska Legislature gets started for the new biennium, there have already been a good number of bills filed relating to taxes and our state’s economy.
I am anticipating more of these bills to be filed in the upcoming days, dealing with property taxes, income taxes, sales taxes, motor vehicle taxes, and more. A key motivation behind these many proposals is to make Nebraska’s tax climate more competitive with other states. Empirical research has determined that a state’s ability to attract, retain, and encourage business activity is considerably affected by its tax structure. Subsequent research found that tax increases significantly impede economic growth and that business taxes have a negative impact on start-ups.
According to How Money Walks, an analysis conducted using IRS data, Nebraska has lost $4.21 billion in gross income since 1992. Let’s take a look and see what states Nebraska is competing with on an economic front.
Nebraska has gained $231.39 million from California, North Dakota, Illinois, New York, and New Jersey. Notably, apart from North Dakota, all these states have significantly higher tax burdens than Nebraska.
However, we have lost $2.467 billion to Texas, Florida, Arizona, Colorado, and Missouri. All these states have lower taxes than Nebraska on several fronts. With the exception of Texas, all levy lower property taxes, Texas and Florida have no state personal income taxes, and none of these states levy a tax like Nebraska’s inheritance tax.
When we look at the IRS data from a population perspective, it tells a similar story.
In total, Nebraska has lost 73,961 (tax filing) people since 1985 due to outmigration.
When this is broken down, Nebraska gained 12,465 people from California, Iowa, North Dakota, Michigan, and Mississippi. However, the state has lost 38,707 people to Texas, Arizona, Colorado, Missouri, and Florida.
It’s noteworthy that Nebraska’s wealth and population were both lost to the same states. There are many reasons why people move, but we know taxes are one of them.
Over the last century, public finance scholars have explored the best way to raise revenue to pay for public services demanded by citizens. While there is still much debate, there is remarkable agreement on the general principles of sound tax policy. Simplicity, transparency, neutrality, stability, and fairness are all core principles of a good tax system. Hopefully, the bills introduced in the coming days will incorporate these principles to help Nebraska modernize its tax code and become more competitive.