As a result of the "fiscal cliff", income taxes rose on individuals earning $400 thousand (couples over $ 450 thousand) this year. Additionally, nearly 80% of Americans' tax rates increased, due to the expiration of temporary relief on payroll taxes and Social Security rates. This gets us to March, assuming the debt ceiling doesn't crash down first. Reports are the House has a plan to extend the ceiling a few months, with the penalty of cancelling Congressional paychecks if a budget is not produced by the Senate before it ends. I think Americans from all parties will support Congressional "unemployment" if they can't get their fiscal business in line.
In this atmosphere of rising federal income tax, and looming health care taxes, several states are considering lowering or eliminating state income taxes. This week, Nebraska's Governor Dave Heineman proposed we join those states. He laid out two plans to eliminate our state income tax, closing exemptions for various businesses, charities and exempt organizations, as well as charging sales tax on resources, college and hospital rooms. Governor Heineman plans to eliminate the tax on retirement and social security benefits which currently exists, to give older residents reason to remain in Nebraska once they retire. The idea is to shift over $2 billion of income tax revenue to other user fees and taxes. Heineman's plans also include 4.9% in increased spending on current budget items over the next 2 years in the process.
States making this transition have Republican executives and predominantly Republican legislatures (Louisiana, North Carolina). The criticism is, this is an attempt to move the "trickle down" philosophy from the federal government (where taxes and spending are rising in fashion like California, Illinois, and New York). There are those who believe these are "continued tax breaks for the wealthy". If it attracts "the wealthy" to bring businesses and spend in your state, because of an attractive income tax structure, it deserves a discussion.
As it applies to Nebraska, though, the change should be very successful. We have not experienced the extreme economic stress much of the rest of the country has; unemployment remained low, energy costs reasonable, and businesses stable. To companies located in states facing rising federal taxes and health care costs, and state income taxes rising with them; Nebraska, with a balanced economy (agriculture, technology, supplies, transportation, entertainment, and medicine are thriving here) should be appealing on its own merits. Removing the income tax and payroll taxes that accompany them, and reducing the costs of doing business to balance federal demands should generate growth in all areas.
There is much to be discussed, but the goal is certainly laudable and Governor Heineman should be commended for his innovation and pro-active thinking in this area.
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