Don’t be dense: Geography alone can’t explain Nebraska property taxes
A tweet by The Omaha World-Herald’s Lincoln Bureau Chief Paul Hammel compares the latest average property tax rates between states and makes reference to a piece of conventional tax wisdom that often goes unquestioned.
NE ranks No. 8 in the U.S. for highest property taxes by @TaxFoundation today as measured as a percentage of owner-occupied housing value. Iowa not far behind at No. 12; Kansas No. 15. Even S.D., with its broad sales tax base, ranks No. 17. Lotta land, few people.
— Paul Hammel (@PaulHammelOWH) August 26, 2020
Paul is hinting at the idea that Midwest and Plains states like Nebraska have high property taxes because they’re larger states with relatively small populations. The argument goes that pooling our limited resources for more miles of roads and school buildings naturally mean property taxes will be higher.
It sounds sensible, but there are other possibilities.
Nebraska is among the 15 least densely populated states, based on 2010 census numbers.
All of these states with the exception of Maine are pretty big. They’re all among the top half of states for land area, exceeding 50,000 square miles each.
Colorado is the most populous. Nebraska is in the middle of the group in both population and population density.
But among these states, Nebraska has the highest property tax rate on owner-occupied housing. Among these states, the average is 0.97%, or near Oregon’s rate.
Geographically, most of these states are larger than Nebraska. Only Maine, Iowa, North Dakota, and South Dakota have less land area than Nebraska, with South Dakota being roughly the same size.
It is clear that many of the Midwestern states have higher property taxes than the Mountain and coastal states. But it would be difficult to conclude population, density, or land area are the driving factors.
Kansas, Utah, and Nevada have similar populations and are all large states, but Kansas’ property taxes are still twice as high as the other two.
It’s also worth comparing how these states fund government in general.
Some of these large states raise significant revenue from natural resource severance taxes, which could reduce the burden on homeowners. Many Western states have less privately-owned land to tax, but that’s less of a concern here since we’re comparing owner-occupied housing and not farmland.
Despite those differences, several of these states also do not levy sales or income taxes, which calls into question if their property tax burden is really as comparable to Nebraska as it seems.
Alaska has no statewide sales or income tax, Wyoming, Nevada, and South Dakota have no personal or corporate income taxes, and Oregon and Montana do not levy sales taxes.
Presumably, all of these states could have lower property taxes than they already do if they collected the taxes they forgo.
Nebraska, Iowa, Colorado, and Kansas, for example, levy income, sales, and property tax. Idaho and Utah, which don’t collect much severance tax, collect sales taxes on groceries, as do South Dakota and Kansas.
It may be said that some of these large states with low property taxes have higher populations than Nebraska, but that was not always the case. Utah, Colorado, and Nevada all had comparable or lower populations than Nebraska in relatively recent history. Idaho is also quickly catching up with Nebraska.
These states all have desirable features, and a reasonable tax climate may be one contributor to their faster growth.
Comparing how these states structure and spend money on government services is also necessary. Nebraska and other Midwestern states may choose to have more school districts relative to their population compared with some Mountain and Western states, or they may select to spend more at the local level on services.
It’s tempting to believe our circumstances are due to factors beyond our control, particularly when change doesn’t come easily. But the states most comparable to Nebraska make many different arrangements that reduce their reliance on property taxes and their tax rates.
Slower growth in the Midwest may certainly be a challenge not felt in other regions, but significant differences in the overall tax structure can be observed even among our neighbors.
Nationally, there are large states with low taxes and small states with high taxes.
While it’s easy to observe that the distribution of population in Nebraska influences the policy choices our leaders make; it is ultimately those choices, and the demands Nebraskans place upon their leaders, that play the biggest role in the taxes we pay.