Legislative Testimony for LB728, Proposal to Introduce a Millionaire’s Tax
Good afternoon, Chairman Smith and members of the Revenue Committee. My name is Nicole Fox, and I am the Director of Government Relations for the Platte Institute. I am here today to testify in opposition of this bill.
This bill proposes a millionaire’s tax. Currently, the only states that levy a higher tax rate on income of $1 million or more are California and New York along with the District of Columbia.
According to research by the Tax Foundation[i], a millionaires’ tax is poor policy because it is a narrow, high-rate tax on a highly mobile group of people who earn less in bad economic times. Enacting such a tax makes state tax revenue more volatile and unpredictable.
The unpredictability and detrimental economic repercussions of the tax was proven in Maryland when the state tried to address a state budget deficit by enacting a new millionaire income tax bracket. The Wall Street Journal described the result of this tax increase one year later stating,
“One-third of the millionaires have disappeared from Maryland tax rolls. In 2008, roughly 3,000 million-dollar income tax returns were filed by the end of April. This year, there were 2,000, which the state comptroller's office concedes is a 'substantial decline.' Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year — even at higher rates.”[ii]
This same situation played out in Oregon when they instituted a higher tax rate on high income earners and according to the state treasury, one-third less revenue than projected was collected and 10,000 high income earners left the state.[iii]
Under the current tax code, Nebraska has the 15th highest income tax rate in the nation and one of the highest in the region. IRS records[iv] show that since 1992, a net total of over $3.5 billion in adjusted gross income has left Nebraska, the majority of which found its way to states such as Texas, Florida, Arizona, Colorado, and Missouri, which all levy lower top personal income tax rates or none at all. If Nebraska increases its top marginal income tax rate, we will see even more money and residents flee for lower tax states.
When high income earners flee to lower tax states, this puts more pressure on the middle class families to pay for even more of state government.
According to USA Today, Omaha ranks eighth among the nation's 50 largest cities in both per-capita billionaires and Fortune 500 companies. In a Lincoln Journal Star article[v] last fall, twelve Nebraska cities were on a list of U.S. metro areas with the highest share of households with $5 million or more in assets to invest. A study of 2016 wealth concentration[vi] ranked Nebraska 24th among states for concentration of wealth. According to the study, Nebraska has 39,220 households with $1 million or more to invest.
If the state decides to pass LB728, there will be negative consequences for our state and we will surely drive away the wealth. An ALEC study summed up the result of a millionaires tax perfectly stating, “The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or to find other lawful methods of avoiding the realization of taxable income”. [vii]
The research and evidence from other states is clear that this is bad tax policy and not the right decision for Nebraska. I encourage the committee to vote in opposition to LB728. Thank you and I would be happy to take any questions from the committee.
[i] Tax Foundation, Joseph Bishop-Henchman, “Trend #1: Millionaires’ Taxes”, June 15, 2012.
[ii] The Wall Street Journal, “Millionaires Go Missing – Maryland’s fleeced taxpayers fight back” May 27, 2009.
[iii] The Wall Street Journal, “Ducking Higher Taxes –Oregon’s vanishing millionaires”, December 21, 2010.
[iv] How Money Walks – IRS Tax Migration, accessed January 24, 2018.
[v] Lincoln Journal Star, “Nebraska cities and the multimillionaires who live in them”, November 20, 2017
[vi] Phoenix Marketing International, “Millionaires by state ranking 2016”
[vii] American Legislative Exchange Council, “Tax Myths Debunked”, 2013, page 24.