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1 Joseph Henchman, Comments on Deferred Income Tax Rate Changes, Tax Competitiveness, and Sales Tax Expansion 1 (2017)

handle is hein.taxfoundation/codefintrh0001 and id is 1 raw text is: Comments on Deferred Income Tax Rate Changes, Tax Competitiveness, and Sales Tax Expansion Joseph Henchman Vice President of State Projects, Tax Foundation Testimony to the Nebraska Legislature Revenue Committee February 15, 2017 Chairman Smith and members of the Committee: My name is Joseph Henchman, and I'm vice president of state projects at the Tax Foundation. I'm pleased to have the opportunity to present this testimony on L.B. 452. While we take no position on the legislation, I hope to give a review of our research into similar policies across the country and provide our analysis of the economic effects of the tax changes envisioned by the proposal. I would like to provide four general comments: (1) the use of deferring tax changes, or tax triggers, is increasingly common to subject tax reform measures to revenue availability, and this proposal would be cautious and incremental; (2) lowering Nebraska's out-of-line top individual and corporate tax rates would improve the state's competitiveness and reduce individual and business tax burdens; (3) the proposed sales tax base expansion generally consists of items subject to tax in many other states; and (4) lessons to know from Kansas's tax changes. Summary of Proposal The bill consists of two sets of changes: the first to take effect in 2018 and 2019; the remainder to take effect in subsequent years. The first set of changes would eliminate Nebraska's bottom income tax rate (currently 2.46 percent), cutting taxes for all Nebraskans with income exceeding $3,000 in taxable income. The top income tax rate would also be reduced from the current 6.84 percent on income over $29,590 per year (single or married filing separately), $43,880 (head of household), or $59,180 (married filing jointly), to 6.73 percent in 2018 and 6.62 percent in 2019.1 Personal exemptions would be reduced for those who earn more than $75,000 (single) or $150,000 (married filing jointly). The bill would also reduce the corporate 1 For some very high-income taxpayers, Nebraska's top tax rate is in practice higher than other states with comparable rates because Nebraska is one of two states with an income recapture provision (New York is the other), which removes the benefit of lower tax brackets in the tax table for high-income earners.

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