Legislators, tax experts preview upcoming debates on Nebraska tax policy

By Brian Beach

OMAHA, Neb. (Nebraska Public Media)—Nebraska's Unicameral passed legislation during this year's special session that could provide around $185 million in property tax relief.

That represents around 3.5% of local property taxes that were collected in Nebraska last year. Gov. Jim Pillen initially called the special session with hopes of eliminating 40% of property taxes.

The relief will come through a cap on how much local governments can collect through property taxes and a credit that is automatically deducted from property tax statements instead of having to be applied for.

At the Platte Institute’s Annual Legislative Summit, Speaker of the Legislature John Arch addressed a room of senators and policy analysts, saying the session didn’t achieve all of its goals, but what did pass will help Nebraskans.

“We took a swing for a grand slam and tried to hit the bleachers and missed on that,” he said. “But we hit a lot of singles and doubles in 2024 and those are going to be taking effect over the next several years, and people will see that in their tax assessments.”

State income tax cuts that were passed by the legislature in 2023 will continue lowering tax rates in the years ahead. The rate for the highest tax bracket will fall to 3.99% percent by 2027.

Michael Lucci, a senior policy advisor at the Platte Institute, said the income tax cuts are important to help the state attract workers as neighboring states like Iowa pass similar legislation.

“Nebraska’s move on the income tax is very timely to become competitive on this front, because as we move to a more remote work world and no deductibility of your state income tax, that's going to be a bigger driver of decisions for moves,” he said.

But according to some fiscal analysts, the state could struggle to raise enough money for its expenses by 2027 due to these changes.

At a separate event on tax policy, State Sen. Wendy DeBoer said she expects another major debate to occur once the state income tax cuts take full effect.

“That's why 2027 is a nodal point for us,” she said. “It’s that when those revenue cuts get put into place, then we have to figure out where to replace that money, or what to do to sort of rebalance the budget.”

Another change to keep an eye on is at the federal level. The Tax Cuts and Jobs Act of 2017 is set to expire at the end of next year, and it will be up to Congress to determine what provisions remain and which could be amended or eliminated.

OpenSky Policy Institute Executive Director Rebecca Firestone said the federal tax cuts primarily helped wealthier Nebraskans and businesses.

“What we can say to definitively is that people the top 20% of the income distribution, got way more of a tax cut, both in terms of dollar value as well as proportionately under the TCJA than people who are middle class or working-class families,” she said.

Firestone said middle class Nebraskans were the least likely to receive any benefit from the federal tax cuts, but policies targeting cutting taxes for that group often don’t show up in tax debates.

“If there's a focus on trying to reduce corporate taxes, that's more likely to influence higher earners in in the economy, and if you're looking at how to create credits and exemptions, many of those provisions are more likely to be targeted to people at the lower ends of the income distribution,” she said.

Jared Walczak, the Vice President of State Projects at the Tax Foundation, said certain tax policies work best on a federal level, but they can create issues on a local or state level.

“States are competing, so huge differentials in tax burdens create migration, create investment differences, create distortion,” he said. “That's why the Federal Government, where you're going to have a lot less migration - far fewer people are going to move abroad over taxes than might move from Nebraska to Iowa - has a lot of the progressivity.”

The Nebraska Legislature will reconvene for another session in January with at least 15 new senators following November’s election.