96% of Nebraska income losses go to lower tax states

96% of Nebraska income losses go to lower tax states

Capital flows to where it is most welcome. A state’s tax burden is one factor that contributes to how welcoming a state is to new flows of capital. 

This lesson should always be on the mind of state lawmakers as they adjust their state tax code each year. While reforming the tax code is important, the total tax burden also contributes to a state’s well-being. 

Nebraska lost $206 million in annual adjusted gross income (AGI) to other states in the most recent year of Internal Revenue Service (IRS) tax migration data.  

Looking under the surface, Nebraska lost $336 million to 36 states plus D.C., while Nebraska gained $129 million from the other 13 states.  

Nebraska’s losses went to low-tax states like Florida ($77 million) and Texas ($70 million). A look at the entire list of States to which Nebraska lost income shows that $324 million of the $336 million in losses went to states with lower total tax burden than Nebraska. 

The Cornhusker State’s tax burden is estimated to be 11.5% of total income, the highest of all surrounding states.  

Almost all of Nebraska’s net income losses went to lower tax states.  

On the other hand, Nebraska gained $129 million from 13 states. Nearly half of that income ($61 million) came from states with higher taxes.  

Nevada anomaly means tax flows are worse than recent data shows 

Also of note is that Nebraska gained $54 million in annual income from Nevada, which is a state to which Nebraska typically loses income. This one-time gain seems to be associated with the move of one business or high net worth individual. If Nevada were not contributing to Nebraska’s income inflow, nearly all of the income moving into Nebraska would be coming from higher tax states. 

The average income associated with a tax return moving into Nebraska ranges from a low of $34,000 (from Vermont) up to high of $113,000 (from Rhode Island).  

Yet the average income of the 317 tax returns that moved from Nevada to Nebraska between 2020 and 2021 was $228,000. The average income of people moving from Nevada to Nebraska was in the $50,000-$60,000 range in prior years. This implies that a very small number of high earners likely skewed the average income of taxpayers coming to Nebraska from Nevada. 

Demographics of Nebraska migration 

Nebraska tends to lose taxpayers from younger and older tax cohorts, and does a little better with prime working age adults. The 35-44 and 45-54 age cohorts are where Nebraska is most competitive. Although Nebraska has net losses in these age brackets, they are not as dramatic as the younger and older age brackets. 

With an affordable cost of living, Nebraska can continue to hold its own with age cohorts that are buying homes and looking for more space for their growing families. Nebraska should continue to target gains from high-cost, high-tax states from which it is already picking up residents, such as California and Illinois.  

Nebraska can furthermore improve its tax code by reducing income and property tax burdens, as the legislature is considering this year. Migration trends are noticeably favoring states with competitive income tax codes and lower overall tax burdens. While cutting taxes isn’t a cure-all, it will remove one of Nebraska’s relatively uncompetitive factors.   

A lower tax burden will contribute to a higher quality of life in Nebraska by leaving more funds in the pockets of the people who work and produce wealth for the state. And as IRS migration data shows, when income leaves Nebraska it overwhelmingly goes to states where it will face a lower tax burden. 

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