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(Lincoln, NE) Gov. Dave Heineman today proposed reducing the tax burden on Nebraska families by lowering income tax rates and reforming an archaic state definition of middle-income earners to reflect the modern middle class.
The proposal also calls for streamlining Nebraska’s tax code to three tax brackets, down from four, and eliminates the marriage penalty, the estate tax and the sales tax on construction labor.
“The target of this proposal is the everyday working families that are the backbone of this state,” Gov. Heineman said. “Middle-class families are the economic driver of our state.
“This reform proposal also represents a significant investment in opportunities to create a 21st Century economy that can compete favorably on the global stage, while providing an opportunity to create jobs here in our state. Good job growth is vital in ensuring a strong future for Nebraska.”
Over the next four years, the Governor’s proposal would provide more than $1 billion in state tax reductions, with the largest portion directed at income tax reductions, providing approximately $957 million in tax relief. The repeal of the estate tax repeal would provide approximately $83 million in tax reductions, and the repeal of the remaining sales tax on construction labor totaling approximately $32 million in tax relief.
The Governor proposes condensing Nebraska’s four-bracket structure into three brackets, widening the definition of the middle class to reflect modern earnings, and providing for lower income tax rates that would be applied retroactively to 2007 earnings. For families and individuals paying at the top marginal rate a modest rate reduction will be phased in over four years. The proposal also calls for indexing the new tax brackets following the rate phase in, beginning in 2011.
The income tax portion of the Governor’s reform proposal would also eliminate the marriage penalty by adjusting income tax brackets and increasing the state standard deduction for married filers to match the federal standard deduction.
In addition to proposing lower tax rates and reform of the state income tax, the Governor is proposing the to finalize the repeal of the sales tax on construction labor for commercial enterprises and the elimination the estate tax.
“If we are going to provide lasting tax relief, our most effective vehicle for achieving an actual decrease in total tax burden and an increase in the amount of money families have available, is to retool the income tax structure,” Gov. Heineman said. “Nearly every respectable study says what taxpayers already know, that Nebraska has become a high-tax state. Reversing this trend is key because it impacts our families and our ability to recruit the next generation of entrepreneurs and businesses to our state.”
Several national tax policy surveys rank Nebraska in the Top 10 highest tax burden states in terms of state and local tax as a percentage of personal income. One survey put forward by the Tax Foundation ranks Nebraska as the state with the sixth highest tax burden in 2006, up from 20th in 1986.
Under the Governor’s proposal, a family of four earning $30,000 a year in adjusted gross income (AGI) would receive a tax cut of $120 dollars, paying 44 percent less than they pay under the current tax structure. A family of four earning $50,000 in AGI would receive a tax cut of $227 dollars, a reduction of nearly 20 percent in income taxes.
A family of four earning $75,000 in AGI would receive a tax cut of $504, a reduction of approximately 19 percent, and an individual earning $40,000 a year would receive a cut of $166, a reduction of about 11 percent.
“This is a pivotal moment for our state,” Gov. Heineman said. “We have two choices. We can act now and grow our state for the future, or we can change nothing and watch the slow decline of a great state. I would argue that we can’t afford to do nothing, and that is why my focus in the 2007 legislative session will be on securing income tax relief for middle-class Nebraskans.”
Tax Proposal (pdf 43k)
Tax Proposal Map (pdf 69k)
Tax Proposal Trend Chart (pdf 43k)
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