Tax Reform in the Cornhusker State

by Tom Yamachika, President, Tax Foundation Hawaii

What do you think of when you hear the name “Nebraska”?  Steaks?  Corn?  Warren Buffett?

As it turns out, they have a few things in common with us.  They pride themselves on their quality of life (but for different reasons than us), and they are facing a population decline just like we are.

And they are trying to do something about it.  “Growing the Good Life Begins Here” is the theme of Blueprint Nebraska, an undertaking with 2000 participants that seeks to make Nebraska more competitive when it comes to economics and people.  They want to reverse their “brain drain,” which we in Hawaii have been bemoaning for some time, and bring 43,000 new 18-to-34-year-old people to the state to live.  They want to grow the pie, adding 25,000 jobs and $15,000 to the annual income of every resident.

When the Blueprint Nebraska folks looked at their tax system, they proposed a major overhaul.  Here is what they had to say about it: 

Blueprint Nebraska’s Taxation & Incentives Industry Council took insights from surveys, public forums, and tax policy research to develop a plan that gives Nebraska a regionally-competitive tax climate that is more inviting to workforce talent.

The headline benefits for Nebraskans include allowing taxpayers to earn up to $50,000 free of state income tax, dedicating an additional $2 billion to property tax relief over the next ten years, and an elimination of Nebraska’s inheritance tax. This is in addition to new student loan relief programs and a doubling of Research and Development investments.

Many states we compete with for people and investment—red and blue—have no state income tax, or at least a lower income and property tax, and very few states have inheritance taxes.

But these bold changes wouldn’t be remotely financially possible without bringing in alternate revenues. Blueprint Nebraska proposes to pay for tax modernization through a major overhaul of current sales tax exemptions, the elimination of itemized deductions for state income taxes, and by ending most corporate tax credits.

Notably, the plan does not propose increasing the state sales tax or removing the sales tax exemption on unprepared grocery items. As well, eligibility for the tax-free bracket would phase out gradually for the highest-earning taxpayers.

Tax reform is never easy, but the recommendations align with an essential tax policy principle—a broad tax base allows significant revenue to be collected at a lower tax rate.

Here in Hawaii, we also need to be looking at competitiveness, as we’ve argued in this space many times before.  We need to work toward a solution that lets us grow the economic pie rather than simply saying that more slices are going to the government.

One way to do that is by looking at the two taxes we have that bring in the most money, namely the GET and the individual income tax, and perhaps pare back the exemptions and credits either to make the code fairer or enact systems to ensure that we as a people are getting value for the credits and incentives we do give out.

We should be learning, competing, improving.  We should be doing more to study other states, especially those with which we compete for people.  We can learn from both their successes and their failures.