Nebraska Tax Sources: The complete tax picture over 24 years

Over the last 24 years, Nebraska’s major revenue sources have grown at roughly 2.5-3 times the rate of inflation, with property tax collections outpacing sales and income tax collections at a slightly faster clip. This overall high rate of revenue and spending growth is what drives Nebraska’s high tax burden. 

Nebraska’s property tax remains the single largest source of tax revenue for state and local governments combined in the Cornhusker State. And not surprisingly, the property tax is also the single largest headache for Nebraska taxpayers, imposing a large burden on both homeowners and businesses and causing significant political consternation. Also not surprisingly, property tax relief remains the dominant focus of policy discussions in the State Capitol.  

Nebraska lawmakers finished the recent legislative special session by passing LB 34, an effort to improve the LB 1107 Property Tax Credit program. LB 34 frontloads the credit of 30% of school district taxes paid automatically by reducing property tax statements, instead of requiring action by the taxpayer to claim it as a refundable income tax credit.  

Over the last 24 years, the locally-assessed and -collected property tax burden has inched closer to the aggregate of state-collected tax revenues, made up primarily of sales and income taxes collections. Since 1999, the property tax has ranged from making up just over 40% of total combined revenues to over 47% of total combined revenues. At no point, however, did the sales tax or income tax bring in more revenue than the property tax.  

 Back in 1999, the property tax, sales tax and income tax collected a total of $3.76 billion, and the property tax made up 40.4%, the sales tax made up 30.4% and the income tax made up 29.2% of the shared revenue collections.  

Fast forward to 2007, the property tax, sales tax and income tax collected a total of $6.04 billion, and the property tax made up 42.8%, the sales tax made up 28.8% and the income tax made up 28.5% of the shared revenue collections. 

By 2015, the property tax, sales tax and income tax collected a total of $8.22 billion, and the property tax made up 46.0%, the sales tax made up 26.6% and the income tax made up 27.3% of the shared revenue collections. 

Finally, in the most recent year of data in 2023, the property tax, sales tax and income tax collected a total of $11.93 billion, and the property tax made up 44.5%, the sales tax made up 28.6% and the income tax made up 26.9% of the shared revenue collections. 

Notably, the 2023 breakdown between property, sales and income taxes would be roughly 42.1% – 29.9% – 28.0% if the offsetting impact of Nebraska’s income tax credits for school property taxes paid were factored in.  

The underlying problem of Nebraska’s high property tax burden can be explained by comparing the 24-year growth in property tax revenue (249%), sales tax revenue (199%), income tax revenue (191%) and inflation (83%). Collectively and individually, the local and state tax collections are growing at roughly 2.5 to 3 times the pace of the consumer price index.   

Taxes are bound to be painful when tax revenues grow so much faster than the cost of everyday goods and services. The long-term solution to Nebraska’s tax problem, particularly property tax problem, must begin with bringing the cost growth of government more in line with the cost growth of other goods and services. This can be done by controlling the growth in tax and spending more tightly to align with consumer price inflation. 

For example, in LB 34 the Nebraska legislature also capped property tax growth rate with a measurement called State and Local Consumption Expenditures (SLCE). While this cap is better than having no cap at all, the SLCE measurement tracks the growth in state and local government spending across the nation. State and local government spending grows much faster than inflation, and so Nebraska’s local property tax levies will continue to grow rapidly under this cap.  

In the long run, a lower tax burden can only be secured with greater taxpayer engagement and tighter controls on tax and spending growth. Imposing such awareness and discipline should be the primary goal for achieving enduring tax relief.