The writer, of Omaha, is executive director of the Platte Institute for Economic Research.
As the Nebraska Legislature begins the 2014 session, lawmakers have already introduced numerous bills intended to make Nebraska more economically competitive, including a number of pieces of legislation that would modify, reduce or eliminate particular taxes.
An economy needs human capital in order to grow, and Nebraska’s population is growing at a pace just shy of the national rate. But while urban and suburban centers are expanding and statewide growth is tracking the national numbers, rural populations are contracting and aging. This is creating concerns about maintaining a healthy economy in a future where one-fourth of the population is 65 or older.
Even though the more populous areas of the state are growing relatively well in comparison to Nebraska’s 51 rural counties, employers increasingly complain of a lack of skilled workers in the state. In a survey of entrepreneurs attending the Nebraska Chamber of Commerce and Industry’s legislative forums last year, “when asked to name one main factor limiting the growth and/or profitability of their business, 25.47 percent said lack of available labor or inability to recruit skilled workers. More than 52 percent said they had experienced difficulty hiring qualified employees during the past year.”
Travis Brown, the author of another 2013 publication, “How Money Walks,” offers compelling data that support this hypothesis: that reducing the burden of government on individuals is key to growing a state’s population.
Analyzing data from the Census Bureau and the annual Tax Foundation survey from 1995 to 2010, Brown’s book makes the case that money “walks to where it is most welcome.” Brown’s 15 years of data mapped show “a clear pattern of AGI … moving from states with high personal income taxes to states with no or low personal income taxes.”
What Brown offers that others have not, however, is an attempt at quantifying the wealth lost by states due to their tax regimes. Brown estimates that states have driven away more than $2 trillion with excessive taxation. “Working wealth appears to be leaving high-tax states in favor of lower-tax ones, especially those with low or no personal income taxes,” his book says.
According to Brown, the Midwest lost more than $80.1 billion in adjusted gross income (AGI) between 1995 and 2010, $35 billion of which went to Florida, Arizona and Texas with their more favorable tax environments. Nebraska is estimated to have experienced a net loss of $2.3 billion AGI over that period.
By Brown’s estimates, Nebraska lost nearly 60,000 workers since 1985 due to tax migration.
This is because the average migrant was not a wealthy individual seeking a tax haven but, rather, a worker with a salary more characteristic of the middle class. Among the 10 states seeing the greatest gains in AGI, the average AGI of the movers was less than $44,000.
This fact is crucial because it makes clear that reducing taxes to enhance the state’s economic competitiveness is not merely about attracting capital but about attracting the labor force that Nebraska employers need to grow their enterprises.
When corporate and individual income tax rates on capital income are high, that income tends to move to a jurisdiction with lower rates.
Lawmakers would do well to prevent middle-class workers from having to make that hard choice. Quite frankly, Nebraska is not competitive as it relates to its neighboring states.
If Nebraska wishes to reverse these negative trends of lower economic and population growth, it must begin implementing competitive tax policies to attract businesses and indi- viduals.
Lowering high taxes would be a good place to start.