Following Governor Heineman's proposal to eliminate the state income tax, it's interesting to look at other states who have made this move. It is an intriguing idea, offering opportunities to businesses facing the fallout of increased taxes and the snowball that is the start of health care regulation this year. As federal taxes and fees increase, wise businessmen will consider moving to a location with resources, employees, transportation, education, and no income tax.
Many states that have no personal income tax have an economy based on a primary industry, like tourism (Nevada and Florida) or oil and energy (Texas Wyoming, and Alaska). The state's economy relies on the success of that industry, so if it becomes vulnerable to economic woes, weather, or market forces, the budgets suffer. The state that most resembles Nebraska making this change is our neighbor to the north, South Dakota.
Primarily an agricultural state, with tourism and other industries, South Dakota collects sales taxes on a variety of goods and services to make up the revenue. They have a lower sales tax on food than Nebraska (4% vs 5.5%) and also battle the image of a "flyover" state in the challenge to draw new business to the state.
Nebraska has a larger employment pool, better transportation hubs with rail, air, and interstate that connects the coasts. The economy is diverse and our climate is temperate, despite the way we usually feel about it. We have a well structured university system, affiliated with the Big 10. Marketing the state as a destination for businesses seeking tax breaks and resources should be much easier for Nebraska.
The governor's plan (there are two, but the second one is scaled down, and does not eliminate the personal income tax, but the corporate tax and taxes on retirement checks for senior citizens) relies heavily on eliminating exemptions on various agricultural expenses, and that drew early criticism from the agricultural industry. Agriculture has been successful in Nebraska, but last year's drought is a strong reminder it can be affected easily by non-economic forces. There is also criticism from Nebraska's universities, being asked to hold tuition rates for two years; but if the tax plan is approved, dorm rooms would incur a sales tax so there would be an increase and it would be passed to the state.
Still, the beauty of this proposal seems to be, while the President and Congress passed higher tax rates, to impose greater burden on the wealthy; this plan would offset that and place the burden for income on the successful, since the taxes are based on transactions, occupancy, and product movement. If business is successful, and more business is attracted, more income will be generated. Finally, unlike other states working with austerity budgeting, because of the shortfall between revenue and obligations, Nebraska's governor is proposing spending increases which average 4.9% over the next two years, and re-build the state's "rainy day" fund.
That's right, America, while Congress spends like they have a credit card with no limit, Nebraska works from a checking plan, a budget, and puts money into savings. Fiscally, our state functions like the citizens. What a concept.