Date of this Version
Business in Nebraska vol. 57, no. 667
According to a recent study by the Bureau of Business Research (BBR), a high-income Nebraska family pays only 1.3 percent of its income in sales taxes under the current state sales tax base1 . Conversely, a low-income family pays nearly three times more-3.7 percent of income-in sales taxes (Figure 1). Interestingly, the tax incidence does not improve when the base is broadened to include certain services. If services are taxed, a highincome family's tax burden-the percent of income paid in sales taxes-nearly doubles to 2.3 percent, but the low-income family still pays nearly three times as much-6.5 percent.
Economists generally agree that sales taxes are regressive-the percent of income paid in taxes (average tax rate) decreases as income increases. Nevertheless, they are popular revenue generators because, only a few cents or dollars are paid on individual purchases throughout the year. The total amount is not apparent like income taxes that are tallied annually. However, total sales taxes become a significant burden on low-income families.
Regressivity of the Nebraska Sales Tax
Adding Services to the Sales Tax Base