OpenSky analysis: Income tax cut bills good for wealthy, non-residents
LINCOLN — Forty percent of Nebraskans would pay more overall taxes under one of two income tax cut proposals in front of the Legislature’s Revenue Committee on Wednesday and both bills would offer large tax cuts to the wealthiest Nebraskans while doing little for the middle-class or small businesses.
Those are the findings of a new analysis by OpenSky Policy Institute on LB 452 and LB 380, two bills that would reduce Nebraska’s top income tax rates and phase in other tax changes.
Both bills also would send significant amounts of revenue out of state to the federal government and non-residents while drastically reducing revenue needed to fund schools, public safety and other essential services, said Renee Fry, OpenSky’s executive director.
“Cutting income taxes isn’t a sensible choice for Nebraska,” Fry said. “This is particularly true in the face of a $1.2 billion budget shortfall that could be the start of a trend of budget gaps.”
LB 452 offsets some of its revenue losses by expanding Nebraska’s sales tax to more services, the OpenSky analysis found, but because low- and middle-income earners pay more of their income in sales taxes than in income taxes, the sales tax expansion would result in an overall tax increase for many low and middle-income Nebraskans.
“Cutting the top income tax rate will always result in large tax cuts for wealthy residents and relatively little tax savings for others,” Fry said. “When those cuts are offset by increased sales taxes, the result is a net tax increase for many residents.”
LB 452’s use of triggered tax cuts also is concerning, Fry said, as they would put tax cuts on autopilot and tie lawmakers hands in regards to responding to changing state needs.
The OpenSky analysis shows that had they been in place since 2001, LB 452’s triggers would have caused tax cuts twice during recessions and again last year as the state was confronted with a budget shortfall.
“These triggers would have reduced revenue at exactly the wrong time,” Fry said.
The analysis also found that most small businesses would be unlikely to receive tax cuts under the measures and that the corporate income tax changes in LB 452 would actually cause about 90 percent of Nebraska C-Corporations to experience tax increases.
“These bills will do little for the middle class and many Nebraska businesses,” Fry said. “But they would reduce revenue needed to fund services that businesses and middle-class residents care about.”