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7 6 2016

Nebraska Taxes Ranked Among Worst for Small Business

A series of reports now suggest that Nebraska’s easy coast through the recession had an unexpected result:  other states grew faster. Last week, our new policy brief on economic barriers in Nebraska showed job and population growth in Nebraska lagged the national average from 2004-2014.

And a recent report by the Omaha branch of the Kansas City Federal Reserve now shows job growth moving in a negative direction in Nebraska’s rural communities, particularly in agricultural and manufacturing sectors. One newspaper headline on the report read, “Nebraska economy not as good as it looks.”

The American Legislative Exchange Council, a national group for free market-minded state legislators, used our data to remind its Twitter audience that they’ve ranked Nebraska’s economic outlook in the lower tiers for years.

The Tax Foundation’s annual State Business Tax Climate Index also ranks Nebraska in the bottom half of the country. While they’ve visited the Nebraska Legislature to offer tax reform options more conducive to economic growth, many past and present members of the Revenue Committee haven’t shared their view that the tax structure is an economic problem for the Nebraskans they represent.

But as if all this weren’t enough to chew on for one week, the Small Business & Entrepreneurship Council (SBE) also released its 2016 Small Business Tax Index, ranking Nebraska as one of the country’s 15 worst tax systems for small business. Under their methodology, Nebraska ranks 40th, sandwiched between infamous high-tax states like Maryland and Connecticut.

The index scores states on 25 measures of tax policy. Key among them is the personal income tax. As Raymond J. Keating, Chief Economist from SBE writes, “the personal income tax influences business far more than generally assumed because some 94 percent of businesses file taxes as individuals (e.g., sole proprietorship, partnerships and S-Corps.), and therefore pay personal income taxes rather than corporate income taxes.”

Nebraska ranks in the mid-thirties or worse on the rates applied to personal income, dividends and interest, corporate income, capital gains, and property tax, and drops farther down the total rankings for imposing an inheritance tax.

Why should anybody care what out-of-state economists and business leaders have to say about Nebraska’s tax system? It helps that these groups review all fifty states on an equal playing field. An outside perspective removes the pride of saying we can do no wrong or the exaggeration that we can do nothing right. It also helps to look at state tax structures, as they truly are, at their worst. Analyses that don’t allow a handicap for tax incentives are far harsher on Nebraska’s policies than those that celebrate the state for tax advantages most Nebraskans don’t receive.

The data increasingly demonstrate that whether people have serious concerns about taxes, or don’t care at all, these policies do impact the quality and quantity of jobs available, which is a critical factor in determining how people decide where to live and work.