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 take into account offering tax reduction to Nebraska residents, I recognize the chance to share how decreasing prime marginal particular person and corporate income tax charges whereas consolidating brackets would promote financial progress and make Nebraska’s tax construction extra aggressive.
Nebraska’s present prime marginal company earnings tax fee 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 prime marginal individual income tax fee of 6.64 % is the 14th highest within the nation.
Quite a few financial research present that company earnings taxes are essentially the most economically dangerous of the foremost taxes states levy, adopted by particular person earnings taxes. Whereas companies remit the company earnings tax, the financial burden of the tax falls on staff within the type of decrease wages, on customers within the type of increased costs, and on traders within the type of decrease returns. Moreover, excessive company earnings tax charges negatively have an effect on the speed of employment progress, and in comparison with different income sources, company earnings taxes yield risky income streams.
Equally, Nebraska’s excessive prime marginal particular person earnings tax fee negatively impacts people and pass-through businesses, penalizing further labor and funding on the margin. Quite a few financial research present reductions to particular person earnings tax charges result in will increase in wages, hours labored, and financial output, in addition to decreases in unemployment charges. Focused reductions to prime marginal charges have been proven to encourage productiveness and promote long-term financial progress.
As you take into account further earnings tax reductions, consolidating earnings tax brackets also needs to be a precedence. Nebraska is one in every of solely 15 states with a graduated-rate company earnings tax construction. Graduated-rate company earnings tax buildings make little sense as a result of high-income companies might be owned by low-income shareholders whereas low-income companies might be owned by high-income shareholders. And on particular person earnings 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. In consequence, 13 states have applied, or are within the technique of implementing, a flat tax along with the 9 states that forgo taxes on particular person wage and wage earnings altogether.
Given Nebraska’s giant price range surplus and projected continued income progress, further earnings tax fee reductions could be helpful to the state. Nonetheless, any additional tax cuts ought to be phased in responsibly. A method to do that could be to undertake tax triggers that make sure future fee reductions contingent upon precise revenues assembly specified targets, similar to exceeding the prior fiscal 12 months’s precise inflation-adjusted revenues by a specified quantity.
Accomplished responsibly, decreasing earnings tax charges whereas consolidating brackets would return extra tax collections to taxpayers and promote long-term financial progress in Nebraska.