This year’s session of the Nebraska Legislature has produced another discussion about Nebraska's heavy tax burden.
The governor has offered his ideas for tax relief. Many of Nebraska's 49 senators have offered their own plans. For the next several weeks, the Legislature's Revenue Committee will continue to hold hearings on newly introduced tax-related legislation. At this point in the session, only two things are crystal clear: First, all reasonable individuals can agree that Nebraska's taxes, overall, are too high. Second, Nebraskan's will be divided on the best method of tax relief because different taxes affect residents to differing degrees. The mission of the Nebraska Chamber for the past 103 years has been to represent the state's business community and to give it voice at the Legislature - from large employers to main street businesses, from sole proprietorships to startups, from manufacturers to agri-business.
Our members tell us that taxes, at all levels, are a major cost of doing business. They impact Nebraska's competitiveness when it comes to creating jobs, attracting new businesses or expanding existing ones. But don't just take our word. Respected, independent third parties have analyzed Nebraska's tax structure and its impact on the business community. Here are some of their findings:
- The Tax Foundation says Nebraska's top personal income tax rate of 6.84% is 15th highest among states levying an income tax. (This does not include federal income tax, which takes as much as another 39.6% of personal income. The average taxpayer in Nebraska paid $9,200 in federal income taxes in 2013, according to the National Priorities Project. Keep in mind the majority of businesses pay at the individual tax level.)
- Nebraska's maximum corporate tax rate is 19th highest among states with a corporate income tax. In addition, Nebraska corporations face a top federal tax rate of 39.1%, the highest corporate rate in the developed world.
- A recent study by the Council On State Taxation (COST) reports that businesses paid $4 billion in state and local taxes in 2013 in Nebraska. Property taxes - levied by local units of government - took $1.7 billion of this amount, while individual income taxes on business income claimed another $400 million, and the state's corporate income tax took another $300 million.
- Comparing tax burdens, COST found that Nebraska businesses paid roughly 40% the total state taxes and 56% of total local taxes.
Nebraska's business community has plenty of skin in the game. That's why the State Chamber would like to offer three simple principles to our state policymakers:
1. Wise tax policy must benefit all taxpayers. It must be fair and equitable, taking care to not pit one sector of the economy against another or one industry against another.
2. Smart tax law must make Nebraska more competitive. It cannot ignore the large amount of taxpayer dollars being taken by the federal government from individuals and businesses.
3. While property tax relief is needed, we must not simply shift the burden by raising income and sales taxes. Since local governments and school districts levy property taxes in Nebraska, the only way real property tax relief can be achieved is through reduced local spending coupled with more efficient management.
Fortunately, there are legislative proposals currently before the Legislature that would significantly improve Nebraska's overall tax climate, while adhering to these principles. For example, Papillion Senator Jim Smith and 10 other senators have offered LB357 to gradually reduce the state's personal and corporate income tax rates over the next eight years, providing tax relief to families and businesses. In addition, the bill would generously boost the state's property tax credit program.
Another proposal worth considering is Omaha Senator Burke Harr's LB398 to exempt all tangible personal property from property tax. This would greatly benefit Nebraska businesses, as well as farmers and ranchers, by doing away with the antiquated tax on depreciable personal property used in the trade of business - whether a tractor or combine, manufacturing equipment, desks, computers or telephones.
Of course, no tax relief will sufficiently address Nebraska's high tax climate if public sector spending is not curtailed. Public spending, including at the local level, is directly responsible for Nebraska's heavy tax burden. State lawmakers have some difficult choices ahead in the coming weeks. Yet amid the uncertainty, we know our economy depends on the ability of businesses to prosper. By improving conditions for the private sector - by encouraging new jobs and investments - Nebraska can be a better place for all taxpayers.