States Face Tax Policy Debates as Outgrowth of National Movement

Nebraska is having a statewide debate on the future of our state tax policy. The 2013 legislative session established a Tax Modernization Committee. The legislature charged it with a full-scale review of the state’s tax system, the first such review since 1967. Of course, the economy and our behaviors have changed greatly since 1967. The committee is reviewing ways to bring the tax system into the 21st century based on a 21st century economy.

The Tax Modernization Committee is holding hearings across the state to gather public input on what the tax system should look like. I recently provided testimony to the committee on behalf of the Center. Our main points included:

  • Create a tax policy that focuses on job creation. And make sure Nebraska can invest in things that boost the economy, such as schools, safe communities, and health care.
  • Retain the progressive portions of the state tax system to ensure that middle-class and low-income Nebraskans have a fair and equitable tax system.
  • Explore methods to expand the state sales tax to recognize an economy that spends more on services than goods.

It’s important to remember how the Tax Modernization Committee came about, and the lessons that has for other states. The committee developed as a result of the failed efforts of some to eliminate the state income tax. That lost revenue would have been paid for through elimination of hundreds of sales tax exemptions, many that hit rural people and rural areas particularly hard.

The move to eliminate state income taxes is not unique to Nebraska. Such a move is underway in Kansas, was recently enacted in North Carolina, and is being discussed in other states. It is still the policy dream of some in Nebraska.

This is a national movement. It undoubtedly results in low-income and middle-class citizens paying more in taxes because sales taxes and property taxes impact them more. This national movement will also result in the loss of necessary state services and programs through substantial reductions in state and local budgets.

As the national movement to eliminate state sales taxes moves to other states, be wary of feel-good rhetoric that relies on short-term gain but results in long-term pain.