If Nebraska wants to look at revamping its tax system, as a legislative committee has been charged with doing, lawmakers should consider eliminating sales-tax exemptions on scores of goods and services, an economist said Tuesday.
"Don't do it wholesale. Don't do it piecemeal. Do it over time," said David Sjoquist, a professor of economics at Georgia State University. "You can't do it all at once."
Sjoquist was in Lincoln to address a group of state lawmakers trying to decide what, if anything, should be done to change Nebraska's tax system. The goal of the 14-member Tax Modernization Committee is to create a system that is equitable and simple and provides a stable revenue stream while helping Nebraska compete with other states.
And while the panel talked mainly of property and income taxes Tuesday, Sjoquist said in an interview that the key to reform is eliminating many of the $5 billion in sales-tax exemptions Nebraska grants each year on everything from flower deliveries to farm equipment. The state does not tax groceries.
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"That's a real political question," he said. "You say, 'Get rid of all these,' and then you get campaign contributions from the people who want those exemptions back on."
Three major tax sources fund state and local governments in Nebraska: 44 percent comes from property taxes, 29 percent from income taxes and 27 percent from sales taxes.
* From 1992 to 2012, revenue from state sales taxes grew 4.5 percent; individual income taxes, 5.2 percent; and property taxes, 5.3 percent.
* In those years, tax expenditures for state use went up 4.3 percent and for local government use up 4.7 percent.
* In comparison to the average of six surrounding states, Nebraska brings in a higher percentage of property taxes — for local governments such as school districts, cities and counties — and a lower percentage of general sales tax. Income taxes are just slightly higher than the other six states' average.
* In 2009-10, Nebraska tax expenditures per capita were higher than the U.S. average and six surrounding states for education and roads, and lower on those comparisons for health and welfare and public safety.
The tax study had its genesis last legislative session when Gov. Dave Heineman proposed a bold overhaul of Nebraska's tax system that would have eliminated the state income tax, and in exchange, gotten rid of many sales-tax exemptions.
But Heineman's plan caused so much immediate angst and turmoil that he later backed off and supported forming the committee.
The committee will have hearings in the coming months in Omaha, Scottsbluff, North Platte and Norfolk.
