LB337 – Income Tax Reform
Good afternoon, Vice-Chairman Friesen and members of the Revenue Committee. My name is Jim Vokal, and I am the CEO of the Platte Institute.
Individuals, families, and small businesses that earn solidly middle class income are running up against Nebraska’s top personal income tax rate. LB337 would help to rein in this burden.
Right now, every new dollar these Nebraskans earn in our state costs them about 7 cents, and this does not include federal taxes. This tax rate has not changed for the better in the last 20 years, during which time, other states with lower taxes have enticed Nebraska’s families, retirees, and small businesses to relocate.
IRS records show since 1992, a net total of over $3 billion in annual adjusted gross income has left Nebraska, the majority of which found its way to states as such Texas, Florida, Arizona, Colorado, and Missouri, which all levy lower top personal income tax rates, or none at all.
Census data published in the Omaha World-Herald show most of these states lead the country for gaining college-educated residents on the whole, while Nebraska was among the ten worst states for losing these residents in 2015. Four out of 5 also experienced faster population growth and created more new jobs than Nebraska over the last decade.
Independent experts from the Tax Foundation to the Small Business & Entrepreneurship Council have written about how marginal tax rates factor into this problem. Approximately 90 percent of the income taxes paid in Nebraska are from taxpayers paying this top rate, which includes our small businesses.
We can’t attract more people and income to Nebraska by having policies that are hostile to people earning income.
On average, Nebraskans pay 52 percent more personal income tax per person than the average of residents in Texas, Florida, Arizona, Colorado, and Iowa. Of those states, only Iowa currently has a higher tax rate, and they are pursuing reforms as we speak. Our neighbors in Missouri have also recently enacted a bill like LB337, to reduce their top rate to 5.5 percent.
Nebraskans are tired of alarmism guiding the tax reform discussion. We’re going to hear many nightmare scenarios today that LB337 completely preempts. LB337 may be one of the most frugally-structured income tax reductions in history.
It promises Nebraska’s taxpayers that tax relief is coming; but only in years when the state has sufficient revenue to do so.
If someone doesn’t pay into the top bracket today, then they’re already benefitting from lower tax rates.
But incomes change over time. A young person making minimum wage today could be making $70,000 in a few short years, and the tax rates we levy upon the work, investment, and entrepreneurship that create those higher-paying jobs will determine for many if they find those opportunities here in Nebraska, or in Texas, or in some other state.
LB337 makes a very important commitment to the people of this state that, in time, taxes on hard work in Nebraska will be going down, not up. And for a place that has often been labeled “The Tax-Me State,” that would be an extraordinary accomplishment.