Legislative Testimony: LB938, Change corporate income tax rates

Legislative Testimony: LB938, Change corporate income tax rates

My name is Nicole Fox and I’m testifying on LB938 in a neutral capacity on behalf of the Platte Institute.

I don’t think anyone is going to be surprised to hear me say that reducing the corporate income tax rate is a good economic policy choice for Nebraska. As Sen. Friesen has mentioned in the past, because corporations are entities and not people, the cost of this tax is passed through to customers, workers, and shareholders.

There are simpler, more transparent, and less economically harmful ways to raise the same revenue. Our high corporate income tax is also part of the reason Nebraska became heavily-dependent on tax incentives, to offset the disadvantage of doing business here.

However, there are at least a couple reasons that corporate income tax changes would be better accomplished as part of a larger effort for tax reform in Nebraska.

The first is how much impact we can make with a change in the tax rate. We’re increasingly surrounded by states that are pursuing lower, flatter corporate taxes. Missouri is now at 4%, Colorado may soon drop to 4.4%, Iowa’s governor is seeking a lower corporate rate than this bill proposes, and of course, Wyoming and South Dakota do not have corporate income taxes.

The Legislature should also want to consider what other states might do in the future and whether this bill will set the state up for success.

Because corporate income taxes usually represent a smaller share of revenues in most states, the tax can be significantly phased down over time. As one example, North Carolina passed legislation this year to repeal its corporate income tax by the end of this decade. This is noteworthy, since North Carolina’s corporate income tax was almost as high as Nebraska’s before their legislature began with tax reform about ten years ago.

To have this kind of impact, Nebraska likely can’t rely on using current revenues alone. There are too many other demands facing the Legislature both on the spending and revenue side.

And that brings me to my second point, which is how to prioritize which taxes need the Revenue Committee’s attention the most right now. Many of our peers are also working on their personal income taxes, at the very same time that attracting workforce and population is a statewide and nationwide economic problem.

This suggests a significant effort on personal income tax would be important if Nebraska wants to vie for the growth that will increase Nebraska’s tax base well into the future. If the Legislature pursued tax modernization or tax reform, rather than piecemeal tax relief, that would create the financial flexibility for the state to look more comprehensively at the state’s entire tax structure.

Want more? Get stories like this delivered straight to your inbox.

Thank you, we'll keep you informed!