Nebraska’s Tax Code Now Ranks Among Top Third Nationwide
Nebraska’s tax code is improving, and national rankings are taking notice. In the Tax Foundation’s 2027 State Tax Competitiveness Index, Nebraska improved eight notches from last year, climbing from 24th to 16th nationwide. Nebraska entered the top third of states for the first time, while leapfrogging Iowa. Three years ago, the Cornhusker State ranked 28th overall on the Index.
Nebraska owes its improvement to pro-growth, structurally sound reforms adopted in recent years. Nebraska has reduced income tax rates, consolidating brackets and lowering the top rate to 4.55% for 2026. In 2027, Nebraska’s top rate will drop to 3.99%, a change that should further improve the state’s standing on the Index.
Lower Income Taxes Fuel Economic and Population Growth
Academic studies have found that individual income taxes are among the most detrimental to economic growth. They also create incentives to relocate, inhibiting population growth. Scholars have found that higher marginal tax rates reduce gross state product growth and that reductions in top marginal rates benefit long-term growth. A state’s tax rate is particularly important in a more mobile economy, as workers can increasingly choose where to live, and can bring their job with them. With a capped federal deduction for state and local taxes paid, and with increased remote work, Nebraska’s lower income tax rate is strengthening its ability to compete for talent.
A More Tax-Friendly Place to Do Business
Individual income taxes affect businesses as well as individuals, as most businesses are organized as partnerships, sole proprietorships, limited liability companies, S corporations, and other pass-through entities rather than as C corporations. Since these businesses’ owners pay individual income taxes, they are benefiting from Nebraska’s recent rate reductions. Nebraska also has phased down its corporate income tax rate to match the state’s top individual rate. Thus, the recent changes to Nebraska’s tax code have improved the state’s tax competitiveness for businesses of all sizes and structures.
Additionally, Nebraska conformed to the federal restoration of first-year expensing for business machinery and equipment purchases. This change eliminated a tax penalty for capital investment.
About half the states with corporate income taxes provide some level of immediate expensing for capital purchases. Some states do this on their own. Others, like Nebraska, do so in conformity with the federal tax code. At the federal level, this provision was temporarily allowed to phase down, and Nebraska’s treatment of investment became worse compared to states that implemented full first-year expensing on their own. The federal deduction, however, has now been restored. With Nebraska conforming to it, the state’s tax treatment of capital investments has improved.
From Bottom Half to Top Third: NE Makes Major Gains in Tax Competitiveness
Nebraska improved from 22nd to 13th on the individual income tax component of the Index, and from 13th to 9th on the corporate tax component. The state also improved its property tax ranking three places (from 45th to 42nd), though property taxes remain the state’s worst component ranking. The state’s sales tax rank is unchanged at 14th nationwide, while Nebraska continues to boast one of the most structurally sound unemployment insurance tax regimes, ranking 4th.
The Index is primarily a measure of tax structure, not a measure of tax collections. It is more concerned with the how than the how much. With more than 150 variables across five tax categories, the Index is also a useful diagnostic tool for policymakers and taxpayers interested in how Nebraska compares to its peers and where there is room to improve. Moving into the top one-third of states is very good progress; just three years ago, Nebraska ranked in the bottom half of states. Nebraska’s improvement in the Index validates the recent work of lawmakers to make the state’s tax climate more competitive.