Cutting taxes may not be the answer

Cutting taxes may not be the answer

Kearney, Neb (KGFW) – Cut taxes cut taxes cut taxes. It’s a popular political campaign promise. But what taxes are they talking about? And what really happens when those taxes get cut?

The Nebraska Department of Revenue was tasked to find that out by the legislature. They put out a study every two years, call the Tax burden study that takes a look at hypothetical situations and their possible outcomes.

They released this study this week. I reached out to Tiffany Seibert Joekel from OpenSky policy institute to put into layman’s terms what the study means:

“So what it does, it gives us a portrait of what would happen under two hypothetical tax cuts. $100 million sales tax reduction and a $100 million income tax reduction and gives an estimate of what the impact of those hypothetical cuts would be.”

The study found some interesting things according to Tiffany:

“So what this analysis shows us, is that if you take $100m in sales tax reduction and you compare that with $100m in income tax reduction. First off what this report clearly shows is neither of those $100m tax reductions generates enough economic activity to fully pay for themselves. But what it does demonstrate, is that a sales tax reduction generates significantly more economic activity as a result of that $100m tax cut than does income”

The numbers are all over the board. According to the study, a cut in the sales tax would have a fairly even distribution of wealth to everyone in the state. Though the state would still see a significant loss of money, more than what the cut would make.

A $100million cut to income, however, reflects better in higher income homes. Nearly 67% of that $100 million would go to households making more than $100,000 a year, or roughly the top 20% wealthiest Nebraskans. The lost money from a cut to income taxes, according to the study, also would not come back into the state, as the probability of that money going out of state in a variety of investments.

According to the study, a straight tax cut may not be the best way to bolster economic activity, at least as far as the state is concerned.