Tax report adds fuel to Nebraska's debate on where to cut - Omaha.com
Published Sunday, November 10, 2013 at 12:30 am / Updated at 6:50 pm
Growing the economy
Tax report adds fuel to Nebraska's debate on where to cut

LINCOLN — A little-known state study done by Gov. Dave Heineman's own administration is sparking debate over whether it's a bad idea to cut income taxes — an idea the governor has promoted.

The recent Nebraska Tax Burden Report, which was done by the State Department of Revenue, concluded that cutting state sales taxes would produce a much bigger economic boost than cutting income taxes.

The latter idea has been promoted by Heineman and state business groups as a way to grow the state's economy and population.

The report projected that a $100 million cut in state income taxes would create about $187 million in economic benefits and 1,788 new jobs. But a similar-size cut in state sales taxes would, it said, offer a bigger boost: about $304 million in new income and investments, and 2,615 new jobs.

Renee Fry, executive director of the Lincoln-based Open Sky Policy Institute, said the report validates her group's research that there's no economic boon in cutting income taxes. She said it's probably an economic loss when you figure in cuts in state services and the job layoffs that would be needed to offset the lost tax revenue.

“The Department of Revenue has modeled it, and it hasn't found that it will be this big economic development engine,” Fry said.

But the Governor's Office, through the Revenue Department, said that's an inaccurate reading of the report. State Tax Commissioner Kim Conroy said the report shows that an income tax cut would deliver economic benefits even though less than a sales tax cut.

“They made it sound like it didn't do any good for the economy,” said Conroy, who took over as director of the Revenue Department last month.

The report said that a $100 million cut in income taxes would increase disposable personal income by $122 million and lead to private investment of $65 million. It also would create about $6 million in tax revenue from increased economic activity. The cut, the report said, would deliver the most benefit to taxpayers with incomes greater than $100,000.

By contrast, a sales tax cut of equal size would do much more, generating $21 million in tax revenue and boosting income by $181 million and investment by $123 million.

Conroy said a sales tax cut translates immediately into economic impact, because people tend to take the money they save in sales taxes and spend it on retail goods. Higher-income taxpayers benefit most from income tax cuts, she said, because they pay most of the taxes.

Whether or not an income tax cut would benefit the state's economy has been a key point of argument in the ongoing debate over whether Nebraska needs to modernize its tax system.

That ball got rolling in January when Heineman proposed eliminating state income taxes, arguing that states that don't levy income tax, such as Wyoming, South Dakota and Texas, have grown faster than states, like Nebraska, that do levy it.

Heineman's plan quickly got shot down by state business and farm groups, which said the governor's proposed replacement for income taxes — new taxes on the inputs of companies and farmers, including equipment, fertilizer and seed — would be a job killer.

Now the governor and the Nebraska Chamber of Commerce & Industry are pushing for less-ambitious cuts in income taxes. They say Nebraska is uncompetitive because its top personal income tax rate is higher than all neighboring states except Iowa.

Barry Kennedy of the state chamber said the state's top income tax rate discourages high-skill workers from taking jobs here and hurts startup businesses, which often pay their taxes as personal income.

“I hear from employers on a pretty regular basis who are trying to recruit employees to Nebraska,” Kennedy said. “It does have an impact.”

The Omaha-based Platte Institute, which has been calling for cuts in income taxes, said Friday that 26 economic studies show there is a direct correlation between economic growth and income tax cuts.

The Open Sky group has said studies do not back up the idea that income tax cuts spur economic growth. It has supported cutting local property taxes by increasing state aid and taxing consumer services.

State Sen. Paul Schumacher of Columbus, vice chairman of the Legislature's special Tax Modernization Committee, said the new tax report as well as testimony before the committee indicate that minor cuts in income taxes, such as the one analyzed in the study, don't create an economic windfall.

The Tax Modernization Committee, a panel of 14 state lawmakers, was created after Heineman's initial tax plans were nixed. During recent public hearings across the state, the committee fielded the most complaints about high property taxes, not income taxes.

Another member of the tax committee, Omaha Sen. Heath Mello, said the new tax study showed that the economic impact of income tax cuts would be minimal and would benefit a small group of higher-income taxpayers.

“It provides some sound rationale that we should be very, very, very cautious in making any changes in income taxes,” Mello said. “That would help very few people.”

The tax impact study was started in the 1990s to provide state lawmakers with an unbiased, scientific analysis of potential tax changes. The report analyzes the impact, positive and negative, on all income groups and business sectors of the economy.

Contact the writer: Paul Hammel

paul.hammel@owh.com    |   402-473-9584    |  

Paul covers state government and affiliated issues and helps coordinate the same.

Last day of 2014 Legislature: Praise, passage of a last few bills and more on mountain lions
A voice of experience: Ex-gang member has helped lead fight against Omaha violence
The thrill of the skill: Omaha hosts statewide contest for students of the trades
Intoxicated man with pellet gun climbs billboard's scaffold; is arrested
'The war is not over,' Chambers says, but legislative session about is
A recap of what got done — and what didn't — in the 2014 legislative session
PAC funded by Senate candidate Ben Sasse's great-uncle releases Shane Osborn attack ad
Teen killed at Gallagher Park was shot in head as he sat in SUV, friend who was wounded says
When judge asks, Nikko Jenkins says ‘I killed them’
New UNO center strengthens ties between campus, community
Threat found in Millard West bathroom deemed 'not credible'
New public employee pay data: Douglas, Lancaster, Sarpy Counties, plus utilities
Nebrasks health officials to advertise jobs via drive-thru
Coral Walker named Omaha police officer of the year
Sarah Palin, Mike Lee coming to Nebraska for Ben Sasse rally
Prescription drug drop-off is April 26
Database: How much did Medicare pay your doctor?
Rather than doing $250K in repairs, owner who lives in lot behind 94-year-old house in Dundee razes it
NB 30th Street lane closed
State Patrol, Omaha police conduct vehicle inspections
Bernie Kanger formally promoted to Omaha fire chief
U.S. House incumbents have deeper pockets than their challengers
Nancy's Almanac, April 17, 2014: Trees save money
Ex-Iowan behind landmark free speech case recounts story in Bellevue
Gov. Heineman signs water bill; sponsor calls it 'landmark legislation'
< >
COLUMNISTS »
Breaking Brad: At least my kid never got stuck inside a claw machine
We need a new rule in Lincoln. If your kid is discovered inside the claw machine at a bowling alley, you are forever barred from being nominated for "Mother of the Year."
Breaking Brad: How many MECA board members can we put in a luxury suite?
As a stunt at the Blue Man Group show, MECA board members are going to see how many people they can stuff into one luxury suite.
Kelly: Creighton's McDermotts put good faces on an Omaha tradition
A comical roast Wednesday night in Omaha brought fans of Creighton basketball laughter by the bucketful. This time it was McJokes, not McBuckets, that entertained the Bluejay crowd.
Kelly: New $24M UNO center embodies spirit of newlywed crash victim
Jessica Lutton Bedient was killed by a drunken driver at age 26 in 2010. Thursday, the widowed husband and other family members will gather with others at the University of Nebraska at Omaha to dedicate a permanent memorial to Jessica.
Breaking Brad: How much would you pay for a corn dog?
The Arizona Diamondbacks have a new concession item: a $25 corn dog. For that kind of money, it should be stuffed with Bitcoin.
Deadline Deal thumbnail
The Jaipur in Rockbrook Village
Half Off Fine Indian Cuisine & Drinks! $15 for Dinner, or $7 for Lunch
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 »