Proposal would cut income tax rates to 3.99 percent by 2027

Nebraska’s top individual and corporate income tax rates would fall to just under 4 percent over the next several years under a bill heard Feb. 2 by the Revenue Committee.

Lawmakers last session passed LB873, which will cut the state’s top individual income tax rate in several steps from the current 6.64 percent to 5.84 percent by tax year 2027. It will cut the top corporate rate from the current 7.25 percent to 5.84 percent over the same period.

LB754, introduced by Elkhorn Sen. Lou Ann Linehan at the request of Gov. Jim Pillen, would cut both rates to 3.99 percent by tax year 2027.

Linehan said improving Nebraska’s tax climate is critical to attracting businesses and young professionals. If LB754 is enacted, she said, Nebraska would rank in the top 15 states for lowest personal and corporate income tax rates, compared to roughly 30th now.

Two other proposals heard by the committee, LB804 and LB806, would accelerate last year’s cuts, reducing the top corporate and individual rates, respectively, to 5.84 percent beginning with tax year 2023. Sen. R. Brad von Gillern of Elkhorn, who sponsored those bills at the request of the governor, said proposed amendments instead would implement the rate changes beginning with tax year 2024.

Currently, the state’s top individual rate applies to income of $29,000 and over for individual filers and $58,000 and over for those married filing jointly. The top corporate rate applies to all taxable income in excess of $100,000.

The state Department of Revenue estimates that LB754 would reduce state general fund revenue by $221 million in fiscal year 2023-24. By FY2028-29, it would reduce general fund revenue by an estimated $735 million.

Pillen testified in support of the bill. Even with the recent phased-in rate cuts, he said, Nebraska’s individual and corporate income tax rates are not competitive with those in many other states, including neighboring Iowa, which will phase in a flat 3.9 percent personal income tax rate by 2026.

“From my seat, this is not a hope or a dream,” Pillen said. “This is a dire need for Nebraska.”

Michael Lucci testified in support of LB754. Speaking on behalf of the Platte Institute, he said increased worker mobility and a recent federal cap on state and local tax deductions have made state tax rates more important in determining a state’s overall competitiveness.

Mark McHargue testified in support of the bill on behalf of the Nebraska Farm Bureau and the Nebraska State Dairy Association. He said property tax relief is the Nebraska Farm Bureau’s priority but that the organization also supports Pillen’s tax and education funding proposals as long as they deliver equal amounts of income and property tax relief.

Jim Greisch testified in support of LB754 on behalf of the Greater Omaha Chamber, the Nebraska Chamber of Commerce and Industry and Blueprint Nebraska. He said the proposed cuts would “at last” make Nebraska competitive for businesses and workers deciding where to locate.

Testifying in opposition to the bill was Rebecca Firestone of OpenSky Policy Institute. Although Nebraska currently is in good fiscal shape, she said, OpenSky is concerned that the state might not be able to sustain the proposed tax cuts over the long term.

If lawmakers intend to return a portion of the current budget surplus to taxpayers, Firestone said, a tax rebate or child tax credit would do that without committing the state to ongoing revenue losses.

The committee took no immediate action on LB754.