LINCOLN, Neb. (AP) - Gov. Pete Ricketts’ plan to cut Nebraska’s top income tax rate drew praise Wednesday from business and conservative organizations but criticism from groups that represent teachers, farmers and low-income residents.
Ricketts formally presented the measure to lawmakers, repeating his argument that it’s necessary to help Nebraska keep pace with neighboring states that have lower top rates.
“We have to be more competitive for companies looking to expand here, we have to help small businesses and we have to make sure we let Nebraska families keep more of their hard-earned income,” Ricketts said in testimony to the Legislature’s Revenue Committee.
The hearing before a legislative committee rehashed many of the arguments presented by both sides after the bill was introduced last month.
The state’s leading business groups and economic development officials said a lower tax rate is one major factor companies consider when deciding whether to relocate. Opponents of the bill pointed to academic studies that show little correlation between tax rates and economic growth.
The bill would lower Nebraska’s top income tax rate in eight steps, from 6.84 percent to 5.99 percent, in years when projected state revenue increases by more than 3.5 percent.
The measure would cost the state an estimated $11.7 million in lost revenue when it goes into effect in fiscal year 2020 and increase each year, according to the Legislature’s fiscal office. By fiscal year 2028, the bill would cost the state an estimated $287.9 million.
Brian Gubbels, a small business owner from Omaha, said the bill sends a message to business owners that the state is working to create a friendly environment.
“You need entrepreneurs and investors. They’re the catalyst of our economy,” he said.
According to the Washington-based Tax Foundation, Wyoming and South Dakota have no income tax, Kansas’ top rate is 4.6 percent, Missouri’s is 6 percent and Iowa’s is 8.98 percent.
Businesses that want to expand from other states look at a variety of factors such as workforce availability and the cost of living, but tax rates also play an important role, said Courtney Dentlinger, director of the Nebraska Department of Economic Development.
“If we’re weak in one of those areas, it can lead to elimination from consideration, often before we’re even aware that we’re under consideration,” said Dentlinger, a Ricketts appointee.
But Renee Fry, executive director of the OpenSky Policy Institute, said a similar tax plan in Oklahoma provides a cautionary tale.
Fry said Oklahoma’s automatic tax cut triggers contributed to a budget crisis when that state’s oil revenues plummeted. The financial problems were so severe that nearly one-third of Oklahoma’s schools switched to a four-day week to compensate, she said.
“We’re greatly concerned about the automatic nature of this proposal,” she said, referring to the tax cuts mandated when state revenue grows by more than 3.5 percent.
Jason Hayes, a lobbyist for the Nebraska State Education Association, voiced concerns that the tax cuts could affect the state’s long-term ability to finance public education.
Farm groups said the governor’s plan should have focused more on rising agricultural property taxes.
“We have altogether too much reliance on property taxes” to finance government, said John Hansen, president of the Nebraska Farmers Union.
Nebraska’s top bracket kicks in at roughly $29,800 for single taxpayers and $59,700 for married couples, but with deductions and credits, many taxpayers would have to earn tens of thousands of dollars more before they could qualify for the cut.
People whose taxable income is less would see no savings. And lowering the top rate would provide a much larger tax savings for the wealthy than the middle class because more of the wealthy’s income is taxed at the top rate.
The bill’s opponents outnumbered supporters in the hearing, but each side was limited to 30 minutes of testimony before committee members. Sen. Burke Harr of Omaha objected to the restriction, saying some people were upset because they didn’t have a chance to speak.
Ricketts also presented legislation that would switch the state’s property tax valuation system to one that relies on how much income a land could produce. The current system assesses land based on sales prices.
___
Follow Grant Schulte on Twitter at https://twitter.com/GrantSchulte
Please read our comment policy before commenting.