News Release: Legislative testimony on inheritance tax
NEWS RELEASE from the Platte Institute
Contact: Adam Weinberg
Mobile: (402) 500-0209
aweinberg@platteinstitute.org
TODAY: Legislative Testimony on LR415
Revenue Committee Seeks Recommendations on Inheritance Tax
LINCOLN, NE – Platte Institute Policy Director Sarah Curry will provide testimony on Sen. Robert Clements’ LR415, an interim legislative study on Nebraska’s inheritance tax, which is collected at the county level.
The hearing for the study will be held before the Revenue Committee TODAY in State Capitol room 1525 at 1:30 p.m. Central Time. Curry’s written testimony is available at PlatteInstitute.org/Testimony.
Curry will recommend ways to modernize or replace the inheritance tax. Nebraska is one of only six states that collects an inheritance tax. The process of determining the tax is overseen by county courts when relatives other than spouses, or non-relatives, take possession of inherited property exceeding the value of the state’s exemptions.
The tax rate on inheritances begins at 1% for children, siblings, parents, and grandparents, rises to 13% for more distant relatives, and increases to a top rate of 18% for non-relatives, which is the highest tax rate in the country.
The exemptions range from $40,000 of property value on the 1% tax to $10,000 on the 18% tax, meaning the inheritance tax can impact typical properties like homes, family farms, and small businesses.
Iowa is Nebraska’s only neighbor that collects an inheritance tax, although children, grandchildren, parents, and grandparents are fully exempt. Iowa legislators may consider a complete repeal in their upcoming legislative session.
Curry notes in her testimony that the inheritance tax, which was introduced in 1901, comes with substantial legal and compliance costs, and the exemption levels for the tax have not been significantly inflation-adjusted over the past century.
“$10,000 in 1901 would be $306,211 today after adjusting for CPI inflation, which was almost 3,000% since then,” Curry said.
“Many lawyers in Nebraska charge one or two percent of the value of the property and it is not unusual for attorneys to be paid more than the amount of inheritance tax,” Curry said.
Most states once collected inheritance taxes in the early 20th century. At the time, real and personal property taxes were the primary forms of revenue for state governments, and inheritance taxes were used as a surtax upon the recipients of significant sums of real property.
“This is why the Tax Foundation includes the inheritance tax as one of the reasons we are ranked among the ten worst states for property taxes, because it is essentially another tax on real estate,” Curry said.
However, inheritance taxes were eventually repealed in most states as sales and income taxes became more common ways to pay for government.
Opposition to repealing the inheritance tax in Nebraska is partly due to its use as a revenue source for county governments, which otherwise rely on taxes like property taxes and motor vehicle taxes to pay for their local services. Though counties cannot usually rely on inheritance taxes as a major source of revenue, the receipts are typically placed into a fund for when they may be needed.
In her testimony, Curry suggests that the Legislature could provide counties with the option to seek voter approval for a countywide sales tax as a modernized alternative to inheritance taxes, or to phase out the inheritance tax over a period of years by gradually raising the exemption levels.
To schedule an interview on this topic please contact Adam Weinberg at (402) 500-0209 or aweinberg@platteinstitute.org.
The Platte Institute advances policies that remove barriers to growth and opportunity in Nebraska. More media resources are available at PlatteInstitute.org/Media.