Nebraska is looking at passing legislative bills that would benefit the wealthy, corporations, and out of state residents.
Last year the Legislature passed income tax reductions, both for corporations and individuals. The income earned that falls into the highest tax bracket in each case would be reduced to 5.84%. Because of the influx of federal COVID funds, the state has excess money in its treasury right now. Therefore, several senators believe these tax reductions should be implemented this year, as proposed in LB 804 and LB 806.
LB 754 further restructures the income tax system, lowering the rates for highest earners even more.
The Institute on Taxation and Economic Policy’s analysis of LB 754’s corporate and personal income tax cuts shows:
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Nearly 80% of the tax cuts would go to the wealthiest 20%;
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The wealthiest 1% of taxpayers would get an average annual tax cut of $1,382 while the lowest-earning 20% would receive no tax cut; and
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About 83% of the corporate tax cut would flow to out of state taxpayers because of the way Nebraska taxes corporate income.
Under LB 754, the first three individual income tax brackets would remain unchanged. The top tax bracket of 6.84% on income over $33,180 single, $66,360 for joint filers, would gradually drop to 3.99% by 2027. Nebraskans earning $20,590-$33,180 single or $41,190 – $66,360 joint filers would continue to pay 5.10% for their bracket.
For corporate income tax there are currently two rates paid: 5.58% on taxable income less than $100,000 and 7.81% on taxable income over $100,000. LB 754 would not change the rate of 5.58% on the first $100,000 of corporate income. LB 754 would reduce corporate income tax rates for corporate income greater than $100,000. By 2027 they will have dropped to 3.99%.
Under LB 754, small businesses in Nebraska would be taxed at the higher rate, as the reduced rate in this bill only applies to corporate income over $100,000.
Remember that income tax was passed to be progressive, with the wealthy paying a higher percentage of their total income to support government. Why? Because virtually all the other taxes we pay are regressive – lower income people pay a higher percentage of their earnings. Passage of these bills in Nebraska will make even the income tax regressive.
The Open Sky Policy Institute is a non-partisan organization that advocates for a strong Nebraska through clear fiscal research and analysis. According to Open Sky, “The on-going nature of the tax cuts is concerning given the temporary nature of our current fiscal condition – which was largely the result of $24 billion of federal funds that have come into the state since the onset of the pandemic. While Nebraska can shoulder the immediate cost of the tax cuts proposed in the bills, the revenue impact of the measures will grow over time, even after the federal dollars have all been used up. With federal funds slowing, the threat of recession, a tightening of federal monetary policy and now a potential federal government default, these tax cuts could create major fiscal problems in the future.”
What happens if LB 754 is passed? By Fiscal Year 2028-29, income tax revenues (individual and corporate) will have decreased by $734,879,000 according to the Legislative Fiscal Analyst estimate.
Another concern is that our state tax structure was designed to be a “three-legged stool,” with equal amounts coming from income, sales, and property taxes. The Nebraska Constitution requires a balanced budget. When we face economic downturns, revenues from Nebraska’s income and sales tax drop. Then the state shifts some of their fiscal responsibility to fund things to local governments, who rely primarily on property tax. Those transfers from income to property tax never seem to shift back, and our stool is out of balance.
As we debate changes in our tax system, be aware that those most hurt by the changes proposed are those low-income people who sit just above the poverty line. They aren’t eligible for many of the “safety net” benefits offered by government. In the end they’ll pay a far larger percent of their income to the state.