Thursday, July 28, 2011

Corporate Income Taxes in Nebraska

Platte Chat, a regular communication from the Platte Institute  has an interesting article by Jordan Cash, "The Corporate Income Tax: Dulling Nebraska's Competitive Edge" in its latest iteration.   Among other things it tells us:
  • Nebraska has two corporate income tax rates. The lower rate of 5.58 percent applies to businesses that net under $50,000 a year, while the higher 7.81 percent rate applies to businesses netting more than $50,000. Nebraska's corporate tax applies only to money earned in Nebraska, so if it is a multi-state operation, taxes will only be paid on profits made in Nebraska.
  • While 7.81 percent is not extraordinarily high, it does put Nebraska at a regional disadvantage. Among neighboring states, only Iowa has a higher corporate income tax rate. Kansas and Missouri have are at 7 and 6.25 percent, respectively, similar to Nebraska but still lower. Colorado's single flat rate is one of the lowest in the country at 4.63 percent, and South Dakota and Wyoming have no corporate income tax at all, a unique feature shared only with Nevada.
  • This regional competitiveness issue is underscored by the fact that the Tax Foundation lists Nebraska as 29th for business climate. This is in contrast to two neighboring states that rank in the top ten best business climates: South Dakota at number one, Wyoming at number three. Colorado is respectable at 15th.
  • While Nebraska has a higher ranking than Iowa or Kansas, to be regionally competitive with neighboring states, a corporate income tax reduction would be a sensible first step. One possible option would be to institute a flat tax-rate of the lower 5.58 percent rate, increasing Nebraska competitiveness.
  • The costs of a corporate income tax will simply be passed on to those who associate with the business, whether it be stockholders with lower returns, workers with lower wages, or consumers with higher prices.
  • Since 1980, the corporate income tax has been steadily decreasing as a percentage of state tax receipts. Between 1980 and 2001 the corporate income tax as a percentage of state revenue was almost cut in half, from 7 percent to 3.8 percent.
  • For as little money as it brings in, and for as much as it contributes to keeping Nebraska from being a business friendly haven, the corporate income tax rate should be revisited.
We'd go a little farther ourselves and simply assert that the corporate income taxes makes no sense simply because  as Platte Chat notes, businesses don't pay taxes, people do.  The taxes businesses pay are simply passed on to its clients in the form of higher taxes.

You can see the full Platte Chat at:    http://www.platteinstitute.org/


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