Published Sunday, October 20, 2013 at 1:00 am / Updated at 5:32 pm
Midlands Voices: Adjustments, not overhaul, needed to improve tax code

The author is the executive director of the OpenSky Policy Institute in Lincoln.

Nebraska's economy and tax system are very healthy in many ways. Our economic growth is strong and unemployment is low.

And Nebraska is not unusual when it comes to taxes, as all of our tax rates rank in the middle nationally.

But there is always room for improvement.

Nebraska is hampered by a sales tax that was set up in the economy of the 1960s, when sales of goods like cars and appliances dominated. It hasn't kept pace with today's economy, which is more oriented toward services like haircuts, dry cleaning and massages.

As a result, Nebraska forgoes millions in revenue each year because of untaxed services, according to research the OpenSky Policy Institute completed last year.

With less state revenue, Nebraska has cut support for local governments, forcing these local entities to increase property taxes to pay their bills. Nebraskans from Scottsbluff to Omaha feel this property-tax pinch as property taxes across the state have risen in recent years.

This aggravation with property taxes has been evidenced by the droves of residents who have turned out at the Legislature's Tax Modernization Committee hearings to plead for lower property taxes.

To improve our tax code, we recommend changes that would lower property taxes as well as strengthen our investments in schools, safe communities and other things that help keep our economy strong. These changes include taxing more services and using the increased revenue to boost state aid to local governments like K-12 school districts, which would allow them to reduce property taxes.

In the 1990s, the Legislature increased state aid to school districts, which took funding pressure off schools and allowed them to lower property taxes.

Since then, the state has cut funding to school districts and other local governments, and property taxes have steadily increased again.

The downside of broadening the sales tax base is that it increases taxes on low- and middle-income earners.

To offset this, the state could use property tax “circuit breakers” to provide targeted relief to those who pay high property taxes in relation to their incomes. They are called circuit breakers because they are triggered, much like their electrical namesakes, when a person's property tax bill reaches a certain percentage of his or her income. Circuit breakers could be designed in any number of ways to target certain groups, such as renters or farmers and ranchers.

We do not, however, recommend income tax cuts.

Such tax cuts do little to foster economic growth, research shows. In fact, Nebraska has had more economic growth and lower unemployment than nearly every state that has no income tax. Nebraska's economy has also grown faster than all of our neighbors, except for Iowa — which has a higher income tax rate.

Income tax cuts also do little to benefit middle- and low-income earners. In a recent analysis, we looked at how six real Nebraska families would be affected by lowering the state's top income tax rate to 5.75 percent from 6.84 percent.

Three of those families, all earning less than $70,000 annually, would get no income tax cut. In fact, if the state were to cut its income tax and raise sales taxes to make up the lost revenue, most Nebraskans would pay more in taxes, not less. That's because middle- and low-income earners spend more of their income on sales taxes than do wealthier households.

The Tax Modernization Committee should be commended for its efforts. It has worked hard and its thoughtful approach has put the Legislature in good position to enact changes to our tax code that make sense and will benefit the state and all of its residents for years to come.

Read more related stories
Iowa State servers hacked, nearly 30,000 SSNs at risk
New public employee pay data: Douglas, Lancaster, Sarpy Counties, plus utilities
2nd District House race: After 8 terms, Lee Terry knows how D.C. works — and doesn't
Bellevue man is killed at Minnesota dance hall after South Sudanese basketball tourney
Spring corn planting still sputters in Nebraska, Iowa, other key states
Nebraska banking and finance director to retire
19-year-old killed in one-vehicle crash at 72nd & Shirley
Gov. Heineman vetoes bill to ease restrictions on nurse practitioners
U.S. Senate race: State Auditor Mike Foley defends Shane Osborn against ad campaign
Public defender to represent Nikko Jenkins in sentencing
Mid-America Center on track for lower operating loss
Bluffs City Council approves dozens of new numbered street lights
National Law Enforcement Memorial Week set for May
Lori Jenkins, charged as accessory in 4 murders, waives speedy trial
Ted Cruz backs Pete Ricketts' campaign for governor
Omahan charged with 5th-offense DUI after street race causes rollover
2 blocks of Grover Street closed
Safety board report blames pilot error in 2013 crash that killed UNO student, passenger
Omaha man accused in shooting ordered held on $75,000 bail
2 men charged with conspiracy to distribute meth held on $1 million bail each
Waitress who served alcohol to teen before fatal crash gets jail time, probation
La Vista plans meeting on sales tax proposal, 84th Street redevelopment
6-mile stretch of Highway 75 is the road not taken
Database: How much did Medicare pay your doctor?
Millard school board bans e-cigarettes from all district properties, events
< >
COLUMNISTS »
Breaking Brad: Into the claw machine! Florida kid follows Lincoln kid's lead
In Fort Lauderdale, Fla., a child climbed inside a claw machine. Hey, Florida kid: Nobody likes a copycat.
Breaking Brad: Even Chuck Hassebrook's throwing mud!
The Nebraska campaigns have turned so ugly, Democrat Chuck Hassebrook lobbed unfounded accusations at an imaginary opponent.
Breaking Brad: Kraft wiener recall is business opportunity for TD Ameritrade Park
Instead of returning the wieners, TD Ameritrade Park is calling them "cheese dogs" and charging double.
Breaking Brad: Photos with the Easter Bunny are so 2010
In a sign of the times, most kids ran out of patience waiting for a photo with the Easter Bunny at the mall, just snapped a selfie and went home.
Kelly: 70 years after a deadly D-Day rehearsal, Omahan, WWII vet will return to Europe
A World War II veteran from Omaha will return this week to Europe to commemorate a tragedy in the run-up to D-Day.
Deadline Deal thumbnail
Steam-A-Way Carpet Cleaning
$50 for 3 rooms and a Hallway up to 600 square feet
Buy Now
PHOTO GALLERIES »
< >
SPOTLIGHT »
Omaha World-Herald Contests
Enter for a chance to win great prizes.
OWH Store: Buy photos, books and articles
Buy photos, books and articles
Travel Snaps Photo
Going on Vacation? Take the Omaha World-Herald with you and you could the next Travel Snaps winner.
Click here to donate to Goodfellows
The 2011 Goodfellows fund drive provided holiday meals to nearly 5,000 families and their children, and raised more than $500,000 to help families in crisis year round.
WORLD-HERALD ALERTS »
Want to get World-Herald stories sent directly to your home or work computer? Sign up for Omaha.com's News Alerts and you will receive e-mails with the day's top stories.
Can't find what you need? Click here for site map »