Blueprint Nebraska’s Tax Modernization Plan Explained
Blueprint Nebraska, a campaign dedicated to increasing Nebraska’s economic growth and competitiveness over the next decade, has released its proposed framework for bringing Nebraska’s tax system into the 21st century.
Blueprint Nebraska’s Taxation & Incentives Industry Council took insights from surveys, public forums, and tax policy research to develop a plan that gives Nebraska a regionally-competitive tax climate that is more inviting to workforce talent.
The headline benefits for Nebraskans include allowing taxpayers to earn up to $50,000 free of state income tax, dedicating an additional $2 billion to property tax relief over the next ten years, and an elimination of Nebraska’s inheritance tax. This is in addition to new student loan relief programs and a doubling of Research and Development investments.
Many states we compete with for people and investment—red and blue—have no state income tax, or at least a lower income and property tax, and very few states have inheritance taxes.
But these bold changes wouldn’t be remotely financially possible without bringing in alternate revenues. Blueprint Nebraska proposes to pay for tax modernization through a major overhaul of current sales tax exemptions, the elimination of itemized deductions for state income taxes, and by ending most corporate tax credits.
Notably, the plan does not propose increasing the state sales tax or removing the sales tax exemption on unprepared grocery items. As well, eligibility for the tax-free bracket would phase out gradually for the highest-earning taxpayers.
Tax reform is never easy, but the recommendations align with an essential tax policy principle—a broad tax base allows significant revenue to be collected at a lower tax rate.
An independent fiscal analysis from Regional Economic Models, Inc. (REMI) found the Blueprint framework would raise nearly $500 million more in state revenue over the next decade than the current system. This means Nebraska can achieve a more welcoming tax structure for job seekers and businesses while improving state finances.
The Legislature has already stated its intent to bring the corporate tax rate down to the current top personal rate of 6.84% in the years ahead, but revenue limitations have slowed the implementation. REMI’s estimates show that by ending many tax exemptions and credits, the top corporate and personal rates could be reduced even further, to 4.99% by 2028.
By proposing a move to a two-bracket income tax system where the lower personal tax bracket is 0%, Nebraska can compete with virtually any state on income taxes for the median taxpayer, while continuing to collect needed revenue from higher earners at a reasonable rate.
Regionally, Blueprint Nebraska seeks to make Nebraska a leader in a peer group that includes Iowa, Kansas, Minnesota, Missouri, North Dakota, Oklahoma, South Dakota, and Wisconsin.
Currently, Nebraska’s personal and corporate income tax rates are higher than those found in 5 of the 8 peer states. Under Blueprint’s tax modernization plan, however, Nebraska’s tax rates would be lower—or within one percentage point—than 6 of the peers’ personal income taxes, and 7 of the 8 peers’ corporate income taxes.
Likely Nebraska voters polled earlier this year told us this approach has approval across party lines. A tax plan cutting property and income taxes through eliminating sales tax exemptions had the support of 61% of Republicans, 58% of Democrats, and 57% of independents. Only about 20% of voters in each group were opposed to the idea, while a similar amount was unsure.
It’s also important to note what the Blueprint Nebraska tax modernization plan doesn’t do. It doesn’t outline a lot of spending policy, and this is by design.
With the Legislature already devoting nearly $1 billion to property tax relief programs, the additional infusion of revenue from the Blueprint plan will provide more flexibility for policymakers to consider next steps for further reforms in education funding or other areas.
For example, a significant share of Nebraskans may pay much less state income tax under the Blueprint Nebraska plan. That may justify revisiting the state’s newest property tax relief program, which is currently designed as an income tax credit.
Instead of paying out more income tax refunds as property taxes continue to rise, senators might find those funds can be put to better use with permanent reforms to how Nebraska structures property taxes.
While any framework is bound to see adjustments through the legislative process, Blueprint Nebraska has put forward a compelling vision for a tax system that is more inviting to the people, workforce, and investments that our state needs to grow.
Learn more about tax modernization in Nebraska with these Platte Institute resources: