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Statement of the Tax Foundation
Comments on Deferred Income Tax Rate Changes
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).1 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