Nebraska Tax Relief Solutions: Nebraksa Income Tax Reform

Chair Linehan and Members of the Income Committee:

As you think about offering tax aid to Nebraska residents, I recognize the chance to share how lowering high marginal particular person and company earnings tax charges whereas consolidating brackets would promote financial progress and make Nebraska’s tax construction extra aggressive.

Nebraska’s present high marginal company earnings 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 earnings tax price 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 key taxes states levy, adopted by particular person earnings taxes. Whereas firms remit the company earnings tax, the financial burden of the tax falls on employees within the type of decrease wages, on shoppers within the type of larger 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 unstable income streams.

Equally, Nebraska’s excessive high marginal particular person earnings tax price negatively impacts people and pass-through companies, penalizing extra 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 high marginal charges have been proven to encourage productiveness and promote long-term financial progress.

As you think about extra earnings tax reductions, consolidating earnings tax brackets also needs to be a precedence. Nebraska is certainly one of solely 15 states with a graduated-rate company earnings tax construction. Graduated-rate company earnings tax constructions make little sense as a result of high-income firms could be owned by low-income shareholders whereas low-income firms could 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 strategy 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 funds surplus and projected continued income progress, extra earnings tax price reductions can be useful to the state. Nevertheless, any additional tax cuts ought to be phased in responsibly. A technique to do that can be to undertake tax triggers that make sure future price reductions contingent upon precise revenues assembly specified targets, comparable to exceeding the prior fiscal yr’s precise inflation-adjusted revenues by a specified quantity.

Accomplished responsibly, lowering earnings tax charges whereas consolidating brackets would return extra tax collections to taxpayers and promote long-term financial progress in Nebraska.