It’s the time of year to start talking about taxes, and thankfully the Nebraska Legislature is trying to make your state tax bill a little less in the future. On Wednesday, the Platte Institute will be testifying on LB 337, the Governor’s plan to reduce the state’s income tax.
According to the Tax Foundation, Nebraska has the 15th highest income tax rate in the nation and one of the highest in the region. Neighboring Iowa currently has a higher top rate than Nebraska, but lawmakers have committed to income tax reform in Iowa this year, so we expect to see that rate drop this year.
Currently Nebraska has four rates that apply to different levels of income. While most assume the top rate is only for the wealthy, in Nebraska the top rate kicks in at a very modest income level, $29,590 for single filers and $58,180 for married filers. This legislation plans to lower the top rate, currently set at 6.84%, by about 0.1% each year if revenue growth triggers are hit.
This means if the state has a year where revenue growth is not as high as expected or the nation falls into another recession, core government services are not in jeopardy of funding loss due to the tax reduction. This legislation would slowly reduce the top income tax bracket to 5.99% if all growth measures were hit over the next ten years. If the growth in revenue figure is not hit, then the rate reduction would not occur and the state would stay at the current rate.
Nebraska hasn’t lowered its top income tax rate in 20 years, while many states across the nation have lowered their income tax rates during that time. Since 2008, 16 states have cut their personal income tax rates. That includes five states just last year that lowered their personal income taxes: Arkansas, Hawaii, Maine, Massachusetts, and Ohio.
Lowering the income tax is important to individuals and businesses alike. Most small businesses pay their income taxes through the personal income tax. This is part of the reason why Nebraska is lagging behind the national average in both employment growth and population growth. Many of the jobs and people leaving Nebraska are going to states with lower income taxes, both within our region and across the country.
Tune in here to watch the debate and testimony on LB 337 as lawmakers and the Platte Institute discuss lowering Nebraska’s income taxes.