Jared Walczak on Sales Tax Modernization

Nebraska lawmakers, once again, are facing a challenging budget environment.

They're also trying to preserve the income tax reductions that we championed in 2023.

There's one more scheduled decrease for 2027.

Why is now an important time to have the conversation about modernizing Nebraska sales tax?

It's a great question, and I think part of the answer is there was an opportunity to have this conversation a few years ago, but having it now is the second best thing to having it then.

When we think about what you want a tax code to be, we would like it to lean more towards consumption and less towards income because of the way that those taxes affect economic decision making.

An income tax is a tax on labor force participation.

It's a tax on investment.

Whatever you tax, you get less of.

And we would like labor force participation.

We'd like productivity.

We'd like investment.

Those are very good things.

Taxing consumption is a little less distortionary and therefore shifting the balance at least somewhat towards a consumption tax and away from higher income taxes is better for growth.

It's better for the state's long run economy and for the decision to either move to or remain in the state or to create jobs in the state.

So the goal here is to get the income tax low and to keep it low.

And to the extent that that requires some revenue offset, sales tax base broadening is a great opportunity, not just because it's a consumption tax, but because you have areas, aspects of consumption that are not taxed, where it's non-neutral, where there are things that if you were designing a consumption tax now, you would have put them in the base, but for a variety of reasons, they are not.

So you can actually enhance neutrality and shift some of that tax in a way that is more pro-growth than the system that exists now.

And the Platinum Institute historically has advocated for any income tax reduction to be paired with sales tax base broadening.

Didn't do that in 2023, but that doesn't mean that we still can't do that now to make sure that those income tax cuts are permanent and on the books for the future for that

predictability.

Yeah, that's exactly right.

Yeah, there's one more rate cut to come coming next year, making sure that that is something that can be sustained, that there is the stability, the certainty, the predictability.

That's all really important.

And also, when you look more broadly at the way that income taxes and sales taxes have changed over the years, you look at most states and income tax rates have been cut in most states in especially the last five or six years, but really over a decade, the trajectory has been rate cuts.