An innovative plan to overhaul the Cornhusker State’s tax code is gaining momentum among legislators as state revenue collections continue to smash expectations.
Blueprint Nebraska, an economic report sponsored by the Platte Institute, outlines 15 concrete steps to modernize the state’s economy, primarily by lowering key taxes and broadening the sales tax base. The recommendations aim to improve five key priorities: job growth, quality of life, population growth, income growth, and research and development.
Most notably under the Platte Institute’s plan, taxpayers would see $2 billion in additional property tax relief. With a property tax rate of 1.65% – the 7th highest in the country – Nebraska remains uncompetitive in the region, where states like Oklahoma and North Dakota have property tax rates below 1%. The Blueprint plan would significantly ease the burden on Nebraskan homeowners and create a lucrative new incentive for families moving to the region.
Lawmakers already approved a “Truth in Taxation” law during the 2021 legislative session, requiring municipalities that raise property taxes by more than 2% to inform voters of the increase directly by mail. With the new notification requirement, property owners will no longer be hit with surprise bills as a result of secretive local tax hikes.
The Platte Institute also hopes to dramatically revamp corporate taxes in the state. Rates currently at 7.81% for income above $100,000 would be lowered biannually before reaching 4.99% in 2028. Small businesses making under $100,000 would see rates slashed immediately by more than a quarter, from 5.58% to 4%.
The report’s third major priority calls for eliminating the state income tax on Nebraskans’ first $50,000 in earnings. All other income would be subject to a flat tax identical to the corporate rates, phased down to 4.99% in 2028. In exchange for the tax cut, itemized deductions would also be eliminated, ultimately making the tax code fairer and flatter.
These income tax cuts would allow every family and small business to keep more of their hard-earned dollars in their wallets, while giving potential new residents another reason to choose to invest in Nebraska.
The true strength of the Blueprint framework, however, is in its proposed alternatives for state funding. The state sales tax rate of 5.5% – already lower than Nebraska’s peer states – would not increase, nor would it be applied to groceries. Instead, the plan would end most other sales tax exemptions, apply the tax to services, and broaden the tax base.
Polling shows this approach is popular with voters across the political spectrum. In a survey conducted earlier this year, 58% of Democrats, 57% of independents, and 61% of Republicans approved of a tax plan that cut property and income taxes while eliminating sales tax exemptions.
Relying more on sales taxes gives families and businesses more control over the amount of taxes they pay. With substantially lower property, corporate and income tax rates, as well as an elimination of the inheritance tax, residents will save money and pay taxes in a way they are more comfortable with. Families on both sides of the aisle understand the tremendous implications of the Platte Institute’s modernization plan.
This year, Nebraska legislators approved a small cut in the top corporate income tax rate from 7.81% to 7.25% over two years. But as state revenues soar to new highs, Platte Institute Policy Director Sarah Curry says the extra money could encourage the legislature to take a bolder approach to cutting taxes.
“As these revenue numbers continue to be positive, it’s clear a faster implementation of the rate reduction is affordable for the state budget,” she said. Even without adopting the Blueprint plan, “the Legislature intends to eventually match the top personal income tax rate, which is currently 6.84%.”
As the state offers a more welcoming tax structure to future residents and businesses, state finances will also benefit under the Blueprint framework. A modernized tax code would bring nearly $500 million in additional revenue to Nebraska despite big rate cuts, according to an independent fiscal analysis.
Nebraska legislators should look to the Blueprint framework during next year’s session as they consider how to best utilize higher state revenue and more than $1 billion in federal stimulus funds. Nebraska families and businesses deserve lower rates and a more competitive economy.