Observe: The next is Tax Basis testimony submitted to the Nebraska Income Committee forward of the listening to on LB754 on February 2, 2023.
Chair Linehan and Members of the Income Committee:
As you contemplate offering tax reduction to Nebraska residents, I admire the chance to share how lowering high marginal particular person and company revenue tax charges whereas consolidating brackets would promote financial progress and make Nebraska’s tax construction extra aggressive.
Nebraska’s present high marginal company revenue tax price of seven.25 % is the 18th highest within the nation and the seventh highest amongst states west of the Mississippi River. In the meantime, Nebraska’s high marginal particular person revenue tax price of 6.64 % is the 14th highest within the nation.
Quite a few financial research present that company revenue taxes are probably the most economically dangerous of the foremost taxes states levy, adopted by particular person revenue taxes. Whereas firms remit the company revenue tax, the financial burden of the tax falls on staff within the type of decrease wages, on customers within the type of larger costs, and on traders within the type of decrease returns. Moreover, excessive company revenue tax charges negatively have an effect on the speed of employment progress, and in comparison with different income sources, company revenue taxes yield risky income streams.
Equally, Nebraska’s excessive high marginal particular person revenue tax price negatively impacts people and pass-through companies, penalizing further labor and funding on the margin. Quite a few financial research present reductions to particular person revenue tax charges result in will increase in wages, hours labored, and financial output, in addition to decreases in unemployment charges. Focused reductions to high marginal charges have been proven to encourage productiveness and promote long-term financial progress.
As you contemplate further revenue tax reductions, consolidating revenue tax brackets also needs to be a precedence. Nebraska is considered one of solely 15 states with a graduated-rate company revenue tax construction. Graduated-rate company revenue tax constructions make little sense as a result of high-income firms may be owned by low-income shareholders whereas low-income firms may be owned by high-income shareholders. And on particular person revenue taxes, in 2021 and 2022 alone, 5 states—Arizona, Iowa, Mississippi, Georgia, and Idaho—enacted legal guidelines to transform from a graduated-rate to a single-rate tax construction. Because of this, 13 states have carried out, or are within the technique of implementing, a flat tax along with the 9 states that forgo taxes on particular person wage and wage revenue altogether.
Given Nebraska’s massive finances surplus and projected continued income progress, further revenue tax price reductions could be useful to the state. Nevertheless, any additional tax cuts needs to be phased in responsibly. A method to do that could be to undertake tax triggers that make sure future price reductions contingent upon precise revenues assembly specified targets, corresponding to exceeding the prior fiscal 12 months’s precise inflation-adjusted revenues by a specified quantity.
Completed responsibly, lowering revenue tax charges whereas consolidating brackets would return extra tax collections to taxpayers and promote long-term financial progress in Nebraska.
