Dear Senator:
On behalf of the thousands of members of the National Taxpayers Union and Nebraska Taxpayers for Freedom throughout the state, we write in support of LB 970, a bill that will gradually reduce individual income tax rates. Though it represents a missed opportunity for fundamental tax reform to make the state more economically competitive, the legislation would at least begin to lighten tax burdens for hard-working Nebraska families.
In its current form, LB 970 ratchets down individual income tax rates over a period of three years. Households with incomes under the top income tax bracket of $27,000 would all see reductions next year. In year two, the top marginal rate would fall from 6.84 to 6.8 percent. Finally, in year three, all brackets would see further reductions, with the top rate falling from 6.8 to 6.7 percent. In total, taxpayers would see $8.9 million in relief in the first year and $95 million by 2015, when the new rates fully go into effect.
Both of our organizations support this effort. However, in Governor Heineman’s State of the State address, he called for an ambitious $326 million tax cut that would have offered much more substantive tax relief for small businesses, family farmers, and individuals. By the time the Legislature finished trimming and amending the Governor’s proposal, Nebraska taxpayers can now look forward to only some modestly trimmed marginal rates, not comprehensive tax relief and simplification.
Without bolder reforms, Nebraska faces the very real risk of falling behind its adjacent states in offering an attractive environment for a prosperous economy. According to the Tax Foundation, Nebraska ranks 30th in the country for its business climate; however, the state lags behind all its neighbors except for Iowa in economic competitiveness. Worse, the regional competition could soon become much tougher. Kansas is in the process of significantly reducing its corporate income tax. Missouri could take an even more aggressive approach by phasing out corporate and personal income taxes over a period of five years. Businesses and jobs will take root where the soil is most fertile, and if Nebraska’s leaders wish to cultivate such opportunities, they must use LB 970 as a starting point rather than an end point for future tax reform.
Finally, while the budget passed this week does an admirable job of identifying line-item spending reductions to pair with LB 970’s tax cuts, the plan still increases overall spending. Over the past decade, general fund expenditures have grown by $1 billion, a 37 percent increase. The dramatic rise in state spending is the core of the problem. In order to offer real tax relief to Nebraska families the Legislature must restrain program growth and cut the size of government.
In the midst of a struggling economy, the Legislature should be doing all that it can to improve Nebraska’s prospects for taking an even greater part in a recovery. Our members hope that passage of LB 970 represents a down payment on future tax relief.
Sincerely,
Doug Kagan, President
Nebraska Taxpayers for Freedom
Brent Mead, State Government Affairs Manager
National Taxpayers Union