February 5, 2007
Dear Fellow Nebraskans:
I recently had the opportunity to testify on behalf of one of the tax relief bills being considered by the Legislature’s Revenue Committee. LB 331 is one of more than 60 bills introduced this session that call for some combination of income, sales or property tax reductions. The fact that so many lawmakers are talking tax relief is good news for Nebraska taxpayers, and I’m confident that one of the major accomplishments of this year’s session will come in the form of tax relief.
Lowering taxes is one way government can help stimulate job creation in the private sector and ultimately provide opportunities for young people to remain in Nebraska. I believe that taxes are too high and that the state has a role to play in providing funding to help offset local property taxes. If we’re going to be successful at lowering our overall tax burden, we need both property tax relief and real income tax reform. That is why I’ve proposed directing a record $2.4 billion in property tax relief to local entities, while also working to secure tax reductions for Nebraska residents through reform of our income tax system.
Our current system is outdated and fundamentally flawed, evident in the fact that a middle-class family earning just more than $50,000 a year pays taxes at the same marginal rate as those earning $100,000, $500,000, $1 million, or more.
An effective tax reform package should be should be fair to all taxpayers, should be easy to administer and should result in a simpler, more streamlined tax code. Any tax relief passed this session should result in a lower tax burden for our citizens, and most importantly, its reforms should be permanent. LB 331 meets each of these criteria, and we’ve made a concerted effort to design a package that’s aimed at middle-income earners in our state.
LB 331 widens the middle tax bracket to encompass families earning from $32,000 to $90,000 in order to better reflect today’s incomes. It also eliminates the marriage penalty by increasing the standard deduction and provides for lower tax rates. Two other components of the bill call for the repeal of Nebraska’s estate tax for family farmers and small business owners, as well as the elimination of the remaining sales tax on construction labor.
Under LB 331, a family of four earning $30,000 a year would receive an income tax cut of approximately 44 percent, and a family earning $50,000 would receive a tax cut of nearly 20 percent, compared to the 13.5 percent reduction a family earning $500,000 would receive.
Nebraska is at a competitive disadvantage with neighboring states because of our high tax status. I’ve seen firsthand the challenges our income tax structure creates both for companies looking to expand in our state and for new companies hoping to locate here. The largest providers of jobs in Nebraska are the small, Main Street businesses that pay taxes on their business through the income tax. That is why we need our income tax to be competitive with that of other thriving states.
While it may be unrealistic to expect that we can move from one of the highest taxed states to one of the lowest in just one year – or that we should be competing with states that lack an income tax altogether – we can’t forget that Nebraska has a lot to offer businesses looking to expand. With neighboring states faring far better in terms of tax burden, our goal should be to become competitive.
We have some of the lowest energy rates in the nation, and a well-educated workforce with a strong reputation for high productivity and low rates of absenteeism. We enjoy one of the best quality of life rankings in America thanks to low crime rates, good schools and short commute times, all of which are considered when businesses look to expand.
Add that to the dynamic incentives we provide for job creation, and that’s why site selection committees across the country have started to take notice of Nebraska. What stands in our way is the perception that our income tax structure is out of step with our neighbors.
Because we are one of the few states pursuing significant tax reform this year, we have an opportunity to pass one of the most substantial packages in the U.S. By enacting an aggressive reform of our state’s income tax, we have the opportunity to accomplish something extraordinary. We can positively impact 96 percent of Nebraska taxpayers, while also helping to attract the attention of growing businesses.
LB 331 puts Nebraska in a position to improve our national stature and grow jobs, and most importantly, this bill provides both the real and immediate income tax reform Nebraskans deserve.
