AFP Testimony in Support of LB 405 - Eliminating the State Income Tax
January 31, 2013
Chairman Hadley and members of the Revenue Committee, my name is B-R-A-D S-T-E-V-E-N-S and I am the Nebraska director of Americans for Prosperity, a free market advocacy group with over 40,000 members statewide.
We support Sen. McCoy’s LB 405 for the simple reason that it will increase take-home pay for every hard working Nebraskan. Eliminating the income tax burden on individuals and corporations will make Nebraska a better state to start a business, start a family or start over. By start over I am referencing the 5.4 businesses leaving California per week or the 40,000 people who leave Illinois every year. High-tax states are losing population, business and economic investment; and Nebraska could be a magnet for those new jobs if we reform our tax burden.
(Tax rates impact where people live, where they start a business and raise a family. According to a National Bureau of Economic Research (working paper Entrepreneurs, Income Tax and Investment) “high and increasing marginal tax rates reduce economic growth by creating strong disincentives to hard work, savings, investment and entrepreneurship.”
According to the US Census, states topping the high-tax list: California, New York, Illinois, Michigan and New Jersey saw a total net domestic migration loss of over 365,000 people (365,832) while low-tax states all saw a net domestic migration increase in 2012.)
Nebraska can attract new jobs by eliminating our income tax. Other states which have either eliminated, or greatly reduced, their income tax burden have experienced significant economic growth.
(Between 2000 and 2009 states with a non-existent or low Corporate Income Tax rate have seen their economy grow at a rate 16% higher than states with a high income tax burden. Low tax states have seen their population grow by nearly 12% while high tax states only grew by 6.7%. States with a low or non-existent income tax burden saw state and local tax revenue rise by 69%, over 25 percentage points more than high tax states.)
Comparative studies demonstrate that eliminating the income tax burden on corporations and individuals has a demonstrative impact on economic growth and job creation.
More importantly, eliminating the income tax provides greater take-home pay for hard working Nebraskans. The typical Nebraska family stands to see their paycheck increase by over $1,000 dollars if we pass LB 504.
(According to the Census Bureau the median Nebraska family has taxable income of just over $43,000. With typical deductions and the personal tax credit accounted for, the estimated benefit of eliminating the income tax for the typical family is $1,051.)
That is $1,051 families can save for college, pay off credit card bills, pay the mortgage, or add to the rainy day fund.
Nebraska families work hard and we pay a lot of taxes. In fact, Nebraska has the 21st highest tax rate in the nation according to the Tax Foundation and we pay the greatest tax burden of any of our neighboring states.
(According to Dr. Art Laffer, former economic advisor to President Reagan, there is a growth premium for no-income states compared to high-income tax states.
In fact, since 1971 there has never been a ten-year period where no-income tax states did not significantly outpace high tax states in personal income growth.)
The fact is this: states with no income tax routinely outperform high tax states in population growth, economic growth, job creation and investment. Nebraska can do better, we can be more competitive, but we must have the right tax climate which promotes entrepreneurship and does not punish success.
We do want to briefly offer recommendations for improving LB 405. We do not want this bill to simply be a tax shift from one part of our state to another; or one that predominantly impacts one industry. We believe if Nebraska is to have a sales tax, it ought to be broad. A broad tax base creates a more equitable environment where one business or industry is not receiving preferential treatment. In short, a broad tax base embodies our state motto, equality before the law.
Yet, there are exemptions retained by LB 405 that we do not believe are necessary to the function of government or to maintaining a social safety net. If we were to eliminate exemptions for the sale of lottery tickets, conference bridge services, newspapers, tele-floral services, certain fine art purchases and soda pop the revenue would be just shy of $30 million.
$30 million is adequate revenue to keep intact exemptions for either Nondurable or Durable medical equipment, or a combination of exemptions on business inputs or to lighten the burden on the Ag sector. To be sure, difficult choices must be made. But we offer these specific recommendations as evidence that the conversation on tax reform is just now beginning. It’s a conversation we desperately need and it’s one we hope this Committee will allow to be heard by the full Legislature.