Tax reform is still in the air in Nebraska
Writing in the pages of National Review, Platte CEO Jim Vokal and I described Nebraska’s 2023 tax reform as the best in the nation. Property taxes and income taxes were both cut and reformed in 2023. And that’s not all. Coupled with meaningful reforms in 2022, the total two-year tax relief will be worth $3000 per household once fully phased in.
Nebraskans might understandably be asking whether tax reform is still in the air after two years of tax reforms success. There’s good news. Lawmakers continue to see tax reform as a key plank for the state’s going-forward agenda.
State tax reform can either be a one-off or an ongoing process. One-off tax reforms occur when an unexpected revenue windfall is leveraged to lower tax rates. On the other hand, ongoing tax reform occurs when lawmakers adopt a strategy to continually improve the state tax code, resulting in a virtuous cycle where one good tax reform builds upon another.
Luckily for Nebraskans, Senators are intent on making tax reform an ongoing process, as Platte Institute’s team was able to discern at events across the state in September and October. Ongoing reform is the right way to go, especially given the huge steps Nebraska has already made and the direction charted by Governor Pillen, Senator Lou Anne Linehan, and other reform-focused lawmakers.
At events in North Platte, Lincoln, and across the state, here’s what Platte’s team heard is under consideration for tax reform as the 2024 legislative session approaches.
Property taxes are the central issue of concern in Nebraska and in most other states. The Truth in Taxation hearings in September allowed taxpayers to push back against decisions to raise local property taxes.
State lawmakers have also grown skeptical of local decisions to keep tax rates high in the face of skyrocketing valuations. Lawmakers are open to the idea of imposing tighter caps on local property tax levies, which could come in the form of automatic rate reductions when property values rise or taxpayer referenda as a requirement for raising taxes above a given amount. Lawmakers have also spoken to changing the timeline on when Truth in Taxation hearings are conducted so that they are timed to have more impact on local budget and property tax decisions.
Lawmakers also expressed disappointment that so few school districts leveraged new state aid to schools as an opportunity to reduce school property tax levies.
Death taxes might be DOA after Nebraska’s next legislative session. A growing consensus of lawmakers spoke to the unreasonable burden of inheritance taxes and the arbitrary nature of how different rates apply to different groups of people who inherit property. Furthermore, lawmakers increasingly believe that inheritance taxes provide irregular revenues streams to county governments. The revenues are too unpredictable to tie to programmatic funding. As a result, program spending cannot be based upon inheritance tax revenues. Instead, the revenues continue to come in sporadically, leaving a revenue cushion that obviates the need for disciplined spending decisions.
Lawmakers could use a ballot referendum to let Nebraskans decide on keeping or repealing one of the country’s last remaining death taxes.
Sales tax expansion
One of the more surprising ideas lawmakers spoke to was the possibility of expanding Nebraska’s sales tax base. To be clear – expanding the sales tax base to include more final retail sales is an excellent idea. Sales tax expansion should be coupled with tax cuts elsewhere so that Nebraskans don’t experience a net tax increase. Like many states, Nebraska’s sales tax is narrow because it was crafted when the state’s economy relied more on goods consumption than services.
Sales tax expansion was a core tax reform idea put forward by the Blueprint Nebraska coalition, and continues to be an idea worth pursuing. A well-structured sales tax expansion coupled with reduced tax rates elsewhere would be another big step in Nebraska tax reform.
Nebraska lawmakers remain focused on delivering tax relief even if future tax cuts aren’t as big as the historic cuts from 2022 and 2023. Other ideas that are at play include improving the tax treatment for remote workers who are in Nebraska less than a month, providing full expensing for capital investments, and easing the burden of tangible personal property taxes on small businesses.
The most important consideration is that Nebraska keeps moving forward. Tax reform might be bigger in some years and smaller in others, but continuing the ongoing process is what’s most important to make Nebraska the best state it can be.