The state tax revolution sweeps across the Great Plains
Nebraska lawmakers took a key step towards historic tax reform last week. Revenue Committee lawmakers voted to consolidate several tax reforms into LB 754 and to advance the tax package out of committee on Thursday, March 16.
Nebraska’s legislative progress comes not a moment too soon, as major tax reform proposals are advancing across the Great Plains. The current legislative session will likely result in several tax overhauls in Nebraska’s neighborhood, potentially including a wholesale elimination of a state income tax.
North Dakota’s House advanced transformative tax policy in the form of HB 1158, which would consolidate the state’s progressive tax structure (with a 2.9% top rate) into a flat tax structure with a 1.5% rate for all taxpayers. The bill passed the House on a 79-14 vote, and Governor Burgum notes that the plan would put North Dakota on a path to eliminate its state income tax entirely, matching South Dakota’s no-income tax policy. Notably, HB 1425, which also passed the North Dakota House, would create revenue triggers to phase out the income tax by 2028.
North Dakota policymakers enjoy the extraordinary advantage of the discovery of the Bakken oil field coupled with advances in energy production technology. The result has been a gusher of energy production in the Roughrider State, which has produced a gusher of new state tax revenue. Thus, North Dakota is well-positioned to become the second state to eliminate an income tax that was previously imposed, following in the footsteps of Alaska, which also repealed its income tax in 1980 after its oil boom began.
Yet state tax reform is not dependent upon energy production, especially after years of strong revenues across all states. Kansas and Oklahoma have both advanced bold legislative initiatives to significantly reform their state income taxes. Oklahoma’s HB 2285 would create a 4.5% flat income tax with revenue triggers to lower the rate in future years. Oklahoma also advanced legislation to repeal the state’s franchise tax and corporate throwback rule, two tax policies that disincentivize business investment despite producing little revenue.
Not to be outdone, Kansas’ Senate passed SB 169, which would move Kansas to a flat income tax system with a top rate of 4.75%, cutting from the current top rate of 5.7%. The bill would also expand the personal exemption to offset any potential tax hike on lower-income earners. In addition, Kansas’ Senate advanced SB 33 to index the state’s standard deduction to inflation. SB 33 would also exempt social security benefits and federally-taxable retirement plans from state income taxation.
Missouri enacted income tax rate reductions in October of 2022, bringing the state’s top rate down to 4.95%, and providing revenue triggers for additional rate cuts going forward. Colorado voters approved a rate cut from 4.55% to 4.4% in a November referendum that also created tax triggers to reduce the income tax rate in increments of 0.05%, revenue permitting. And although Iowa did the heavy lifting of tax reform in 2022, phasing in a flat tax of 3.9% by 2026, Governor Reynolds nonetheless recently called for a plan to eliminate the income tax entirely.
Notably, Iowa lawmakers have introduced a study bill in the form of SSB 1126, which would accelerate Iowa’s rate cuts and consider plans to phase out the state income tax entirely. In addition, SSB 1127 considers adopting full expensing for capital expenditures made in Iowa.
And policy influencers are calling upon Arkansas Governor Sarah Huckabee Sanders to adopt a long-term plan to phase out Arkansas’ income tax entirely. In other words, Nebraska is surrounded by tax reform.
While tax reform is sweeping across the Great Plains, pro-growth improvements are not confined to Nebraska’s region. West Virginia Governor Jim Justice signed HB 2526 into law in February, cutting all of West Virginia’s income tax rates in half over the next three years, with the top rate scheduled to fall from 6.5% to 3.25%. Montana policymakers enacted SB 121, which will cut the state’s top income tax rate from 6.75% to 5.9%. And Kentucky policymakers already enacted a bill in February to cut the state’s flat tax from 4.5% to 4.0%.
In addition, Ohio’s proposed HB 1 would consolidate the state’s progressive tax structure (with a 3.99 top rate) into a flat-rate structure with a 2.75% rate. Indiana lawmakers are considering a plan to accelerate a cut from 3.15% to 2.9% in the Hoosier State’s flat tax.
The state tax revolution continues apace across the country, with some of the biggest 2023 tax improvements coming in Nebraska’s immediate region.
Nebraska policymakers are poised to join the revolution. Enacting LB 754, as passed by the Revenue Committee, would not only create historic tax reform, it would secure the Cornhusker State in a leading role in the ongoing state tax revolution.