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1 Joseph Henchman, Comments on Deferred Income Tax Rate Changes 1 (2017)

handle is hein.taxfoundation/codfinxr0001 and id is 1 raw text is: 

      Comments on Deferred Income Tax Rate Changes

                                 Joseph Henchman
                     Vice President of State Projects, Tax Foundation

                  Testimony to the Nebraska Legislature Revenue Committee
                                  February 8, 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. 337.
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 three 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 income tax rate would improve the state's competitiveness and reduce
individual and business tax burdens; and (3) lessons to know from Kansas's tax changes.

Summary of Proposal

The bill would reduce Nebraska's top individual income tax rate, which is currently 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).' The rate reductions would occur
in eight steps, beginning as early as tax year 2020 and continue until the rate reaches
5.99 percent, as early as tax year 2027. However, the reductions are contingent on
General Fund revenue growth: if revenue growth is less than 3.5 percent, the reduction
for that year is deferred until revenue growth reaches 4.2 percent in a subsequent year.

Thus, if revenue growth is 3.5 percent or greater in each of the upcoming years, the 5.99
percent rate will take effect in tax year 2027. If revenue growth never reaches 3.5
percent, the rate reductions will not occur. If some years have 3.5 percent or greater
growth and some years have less, the final step of the rate reductions will take place
after 2027.

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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