Nebraska Governor Dave Heineman is thinking about making Nebraska more like South Dakota by getting rid of its state income tax. Jon Bailey of the Center for Rural Affairs in Lyons, Nebraska, says ditching the income tax would slash state revenues by 56%, dumping the burden of supporting state services on farmers, ranchers, retirees, and lower-income rural folks via more regressive sales and property taxes. That, says Bailey, is a really bad idea.
Ending the income tax is not the path to prosperity. Nebraska has lower unemployment than all nine states with no income tax, and stronger per capita personal income growth over the last decade than six of them. Healthy and educated workers, public safety, and infrastructure, which require investments made possible by the income tax, are far more important to economic development [Jon Bailey, letter to the editor, KearneyHub.com, September 14, 2012].
Bailey is right: South Dakota's low-tax/no-tax regime is really a low-investment/no-investment regime. In education, infrastructure, and other areas, South Dakota tries to get something for nothing. Nebraska is doing well by not following our example.
Update 07:40 MDT: Nebraska State Rep. Heath Mello from Omaha agrees: following South Dakota's no-income-tax policy would make Nebraska's tax system "regressive and unfair."
dumping the burden of supporting state services on farmers, ranchers, retirees, and lower-income rural folks via more regressive sales and property taxes
"Lower income folks" would not be burdened by no income tax.
As groups, farmers & ranchers have not been paying their fair share of income taxes anyway (federal or state), since their high incomes are offset by high inputs costs of fuel, seed, pickups, tractors, etc. Wage earners cannot offset their wage income with the cost of getting to and from work. When farming assets are sold, generous estate tax treatments shield much of it from estate taxes, so again, farmers & ranchers are not paying their fair share of the tax burden.
Retirees frequently sell and move, especially from NE, so their real property tax burden is near 0. Retirement income (social security & pension) then would be free of state income tax.
By definition, a sales tax is a flat tax.
That definition ignores the fact that lower-income folks have to spend a higher percentage of their income to survive than rich people. State and local taxes are in practice more regressive than the federal income tax.
It also ignores the fact that input costs are already a part of the equation for, you know, income. It is true farmers tend to pay less federal tax than similarly incomed folks, but that is because they pay disproportionately more state and local taxes to deduct from their agi.
First of all, you have compared the taxation of lower income with rich. Income taxes do not affect the riches of the rich.
Rich people survive by flaunting their riches; they spend to survive as rich. Rare is the rich hermit. So the rich do spend a large proportion of their income to survive just like low income earners spend proportionally to their low incomes to survive by buying much more stuff to survive as rich thereby paying a disproportionate amount of their income on sales taxes. Also, by spending a lot of income to survive as rich people, the rich use their income to employ many more not-so-high income earners to help them survive as rich people thereby vastly outspending low income earners on social security and medicare taxes for their employees. Low income earners pay only half of their own social security taxes and medicare taxes and pay no social security and medicare taxes for others since they do not employ others.
In reality, the income of the rich is mostly capital gains that is taxed federally at a lower rate than the ordinary income of low earners. But most socialists and rich haters miss the fact that capital gain income has already been taxed to the corporation at the corporate rate of 35% (and in practice, corporations do not pay the corporate income tax--their shareholders do). So the capital gains tax is another tax on top of already taxed corporate earnings.
Sorry, but a sales tax is by definition a flat tax; all taxes have different practical effects on those who pay them, but a single tax rate paid for necessaries is a flat tax.
In regards to farmers and ranchers: I don't see how they pay more state and local taxes when first, they deduct all expenses/inputs from income, and they pay no sales tax on hundreds of thousands if not millions of dollars worth of merchandise and services used to produce that income. When I buy posts or fence for my garden, or a replacement car to get to work, or to hire a plummer to make my house liveable, I have to pay sales tax on all of it--when a rancher does the same thing or buys a pickup, he pays no sales tax on any of it and he can deduct all of it from ranch income. Sorry, but farmers and ranchers just aren't paying their fair share in income, sales, or estate taxes.
Nebraska's entire tax system has been in constant flux for the last 20 years or so. One major revision was declared unconstitutional, special sessions came and went, school funding was stripped, then re-instated, blah, blah, blah.
Nothing to see here, move along . . .
Bob, revenue minus expenses is profit. Are you suggesting a tax on revenue? Regardless, local taxes without an income tax have nothing to do with input expenses. They are based purely on real estate value in SD and as proposed in NE. If your fence posts are a business expense you should set up a private partnership to deduct them from whatever revenue you generate.
Also, capital gains are not first taxed at a corporate tax rate, that is nonsensical. First it implies most rich people earn their income through capital gains on publicly traded c corps, which is far from the truth. Rich people far prefer to invest in private partnerships and llcs that avoid double taxation. But to the extent that people invest in publicly traded c corporations, a) most don't pay 35% on their income anymore due to loopholes (many pay 0%), and b) the income that is taxed is in no way equivalent to the associated capital gains. If a company trades at 10x pretax eps only 10% of the capital gains associated with income gains would have been taxed.
In short, I think you are pretty far off in your understanding of these tax issues.
The only state with a lower unemployment rate than Nebraska is North Dakota, and South Dakota comes in right behind those two. The income tax doesn't seem to matter much in the equation at all. Taxation overall isnt the biggest factor at the state level. The overall burden only varies between 6.4% (Alaska) and 11.8 (New Jersey) A far stronger correlation with bad employment numbers is union power.
I oppose depending on the income tax because it is a progressive tax. Taxing one group more than another is unfair whether it is regressive or progressive. Keep the income tax but make it flat and simple and depend for the baseline revenue coming from sources that will be stable in a downturn like property taxes so those things government supports legitimately do not have the rug stripped out from underneath them when spending stops and people stop making as much money. The idea of relabeling more spending as "investment" is just a lie that never worked before and it won't help now. Spending more hasn't "fixed our crumbling infrastructure" it hasn't fixed some of the worst schools that also spend the most per pupil in the country, and it hasn't fixed GM's bottom line. It has however exacerbated our inflation problems in energy prices, food prices, used car prices, and college tuition. It has preserved the current giant banks and made them even bigger and more arrogant. And it has given Obama something to point at to claim he tried to do something about the situation...since there aren't any results to point at.
Top 10 Union Power in decending order: NY, AK, HI, WA, MI, RI, CA, OR, CN, IL.
Out of these states, only these have managed to get their unemployment below 9%: WA, AK, HI. Hawaii is actually doing better than the 8% national average. Its the only one. And what is that backward state SD doing on jobs with it's non-investment legislature? 4.5%... Yeah Cory, Nebraska really needs to be careful or we might end up like South Dakota.
If the goal is employing lots of people with crappy jobs, South Dakota is to be emulated for sure.
All the blather about unions and progressive taxation borders on incoherent lunacy, you should back Austrian economics. Oh wait, you do.
Nebraska workplace deaths compared to region:
http://trib.com/news/state-and-regional/wyoming-workplace-fatalities-drop-slightly-in/article_d968d86c-b755-5d60-b4c1-f7784cdefb02.html
Vietnam veteran Bob Kerry debates earth hater in NE Senate race:
http://www.kios.org/post/senate-candidates-debate-friday-omaha#.UGWh9IqrNnk.twitter
new York carpetbagger Bob Returns to waste campaign money on the senate seat Ben Nelson waived the white flag on. Zero chance to win unless ms Fischer says we need to burn the children as a sacrifice to the great corn gods.
Bob's no carpetbagger.
http://www.bobkerrey.com/
See also:
http://www.bobkerrey.com/issues/restoring-fiscal-order
Mhs says:
Nebraska's entire tax system has been in constant flux for the last 20 years or so. One major revision was declared unconstitutional, special sessions came and went, school funding was stripped, then re-instated, blah, blah, blah.
That flux is, in itself, a detriment to investment, isn't it? If I were thinking of moving somewhere, I'd want a level of predictability, not chaos, in the tax system.
Roger says:
The only state with a lower unemployment rate than Nebraska is North Dakota, and South Dakota comes in right behind those two. The income tax doesn't seem to matter much in the equation at all.
I agree.