Think tank says state needs to cut taxes, curb spending
NATE JENKINS/The Associated Press | Posted: Wednesday, July 8, 2009 12:00 am
Nebraska risks slipping into an economic malaise over the next decade marked by lower-than-average wages and a crushing tax burden if significant changes aren't made, top economists in the state argue in a report released today..
To prevent a decline, they issue 47 recommendations that largely follow a conservative, small-government philosophy. The recommendations include cutting state and local taxes, easier access to state-sponsored tax breaks designed to lure businesses, a top-to-bottom study of state government from a business perspective, a lid on state spending and even a "constitutional convention" where government changes such as allowing residents to overturn state-budget decisions would be considered.
"Trends…in population, employment, and income, and the associated projections, indicate Nebraska will become a smaller part of the U.S. economy over the next decade if economic growth in the state continues on its current trajectory," says the report.
The study was commissioned by the Nebraska Renaissance Group, a nonprofit think tank focused on, among other things, increasing the state population. Nebraska's overall population has been increasing, but at a slower rate than the national average and the growth has been almost solely confined to large and midsize cities while rural areas have lost people.
Members of the group include business leaders from across the state. The study was funded by donations and a grant from the U.S. Department of Agriculture.
The 176-page report was written by Eric Thompson, director of the University of Nebraska-Lincoln's Bureau of Business Research; Ernie Goss, a Creighton University professor who produces a widely distributed monthly index of business conditions in 12 states; and Nicholas Niemann, a lead architect of Nebraska's tax-break programs.
State Sen. Lavon Heidemann of Elk Creek, chairman of the Legislature's budget-writing Appropriations Committee, called the plan "an excellent starting point for discussions on future plans on how to move Nebraska forward."
Policymakers like Heidemann, however, are blamed in the report for contributing to what the authors say is the state's relatively slow economic growth.
The report is critical of the state's tax policy, calling it "ad hoc at best," and cites national rankings that place Nebraska among the 10 or so worst states for business-tax climates. The report also says the overall tax burden in Nebraska is higher than that in neighboring states such as South Dakota.
Goss noted that Nebraska's tax climate has improved the last few years. Gov. Dave Heineman and lawmakers have approved tax cuts in recent years, including elimination of the so-called marriage penalty, which results in some couples who file jointly paying more in income taxes than if they were single. They also increased the income tax credit for low-income working people.
Even with the cuts, "taxes are still too high," said the Republican governor, who praised the think tank for starting a discussion of key issues while saying he disagreed with some of the recommendations.
The report notes that wage and salary growth in Nebraska lagged behind that of neighboring states and the U.S. from 1995 to 2007, while state and local taxes increased more than in bordering states and the U.S. average. Left unchanged, the authors say those and other factors will depress the economy over the next decade, leaving the state's median income below the national median income by 2015.
"The current practice in Nebraska is to protect tax revenue, sustain a healthy state-government cash reserve and offer highly focused incentives to certain business groups," the report says. "In other words, very little is happening to current tax policies that will entice working-age people to live in Nebraska."
One way to lower taxes, the economists say in the report, is to limit state-spending growth to a rate pegged to the growth rates of population and inflation.
Currently, "The government may simply over-provide key services and amenities such as roads and highways, education, or parks," the report says.
The economists also recommend that the state slow growth in spending on K-12 public schools, tying growth to the rate of inflation. From 1965 to 1995, state government spending on schools increased by almost 14 percent annually, the report says.
The report recommends school districts, cities and other local government subdivisions cut their property-tax rates by 20 percent over the next decade.
Heineman said limiting spending growth on schools to rises in inflation would be "difficult to do."
"If you continue to invest in education…then we can bring jobs to Nebraska," Heineman said. He was also skeptical of a cap on overall state spending, saying it was the wrong solution to the right problem.
On the Web: Nebraska Renaissance Group: http://www.smalltownnebraskaworks.com/about.cfm