Last week the personal finance publication known as Kiplinger’s released its new list of the most — and least — tax friendly states in America. The study compared the states by using a hypothetical married couple with two children and $150,000 in income per year plus an additional $10,000 per year in dividend income. I was not surprised to see that they listed Nebraska as the sixth least tax-friendly state among the fifty states.
The Kiplinger’s report considered all kinds of different taxes, including sales taxes, income taxes, fuel taxes, property taxes, vehicle registration taxes, sin taxes, wireless service taxes, and inheritance taxes. In short, the Kiplinger’s report showed how Nebraskans are getting taxed to death. There are three lessons Nebraskans should learn from this report, and today I would like to tell what those three lessons are.
First, it is time for Nebraska lawmakers to reduce spending in the state budget. The mere fact that Nebraskans are taxed so highly is all the evidence I need to make such a statement. The fact of the matter is that as a state we are running top-heavy. Our state budget is over-bloated and it is time to cut out the fat. This is why I believe the 35% solution contained in the ballot initiative is so badly needed. The Legislature will never act to reduce spending until they feel the same pain as the average taxpayer.
Instead of looking for ways to reduce spending, some have been looking for new ways to raise your taxes even more. Some, for example, have been toying with legislation that would remove sales tax exemptions, such as services provided by dry cleaners, nail salons and dog groomers. But, as you can see, Nebraskans do not need to pay any more money in taxes; instead, Nebraskans need lawmakers who have the guts to reduce spending.
Second, it is time to admit that the economic philosophy of growing the economy by growing the tax base simply does not work. The idea behind this strategy is that if you increase the number of people and businesses paying taxes, then it should result in lower taxes for everyone else all around. But, this approach has proven not to work in Nebraska. Those who subscribe to this failed idea are the same people who have been promoting the ImagiNE Nebraska Act, which would grant even more government welfare monies to businesses in order to try to keep them or attract them to Nebraska. But, this idea has not worked in the past and it will not work in the future because it ignores our state’s biggest problem, namely high taxes.
In order to help you see why this kind of economic philosophy does not work, consider the role that taxes play whenever people or businesses are looking to relocate. People and businesses tend to migrate or stay in low tax states, not high tax states. As Rocky Mengle, Kiplinger’s own tax editor, commented about the report, “… these kinds of analyses are often useful to people looking to relocate, such as in retirement.” Mengle is a very wise man! Why would any person or business want to relocate to Western Nebraska when Wyoming is listed as the most tax-friendly state in America and South Dakota is listed at No. 7 on that same list?
Third, Nebraska needs to cut taxes. If Nebraska’s taxes rank as the sixth highest in the country, then doesn’t it just make sense to cut them? While this may sound like an obvious and common sense solution to the problem, few lawmakers would agree. Not only does the Legislature lack the will to cut spending, they also lack the desire to cut your taxes, and this is a big problem. Only by reducing the tax burden can we make life better for those who already live in our state and attract others to move here.
So, in conclusion, if Nebraska’s lawmakers were to reduce spending in the state budget, change their economic strategy, and cut taxes, we would be much better positioned to compete with Wyoming and South Dakota, and those who already live in Nebraska would be much better off.