Nebraska’s Tax Code is 50 Years Old, and It Shows

August 17, 2016

Nebraska’s Tax Code is 50 Years Old, and It Shows

Analysis reveals key areas where policymakers can improve

Washington, DC (Aug 17, 2016)—50 years ago, Nebraskan lawmakers overhauled the state’s tax code, bringing the state’s finances into the 20th century. Since then, however, the Cornhusker economy has grown and diversified while the code has remained stagnant. The result is a tax system that cannot cope with the realities of a modern, 21st century economy.

This year, policymakers are looking for ways to keep the state competitive in the 21st century, and according to a new report from the nonpartisan Tax Foundation, the tax code is ripe for reform. The report details several key areas where the state’s code has fallen behind, highlights lessons that Nebraska can learn from other states, and explains it all within the context of Nebraska’s current economic make-up.

“There is a responsible approach to tax reform in Nebraska—reform that reduces topline corporate and individual income tax rates, enhances tax neutrality by rolling back corporate tax credits, increases the equity of the sale tax by broadening the base to include select services, and reduces reliance on tangible personal property taxes,” said Tax Foundation analyst Jared Walczak. “By relying on offsets and triggers, policymakers can ensure revenue stability while giving the state a competitive edge. That would be a worthwhile legacy for many years to come.”

The key findings 

  • Nebraska’s tax code, which is approaching its 50th anniversary, is designed around a 20th century economy and lacks the flexibility to embrace the dynamism of the 
  •  The state’s above-average individual income tax rates are a disadvantage for individuals and pass-through businesses alike. Expansion of the sales tax base to include certain personal services could help pay down rate reductions, and further cuts could be phased in over time using “triggers” to ensure revenue 
  • The Nebraska corporate income tax is characterized by high rates offset by substantial incentives for targeted industries. Policymakers could adopt a competitive single-rate corporate income tax by rolling back inefficient corporate tax credits, with possible further reductions subject to revenue 
  • Taxation of business equipment and other tangible personal property disincentivizes capital formation and imposes substantial compliance costs on Nebraska businesses. The state should consider approaches to reduce reliance on, or gradually phase out, tangible personal property 
  • Responsible tax reform would eliminate the “sticker shock” of the state’s high top marginal rates, enhance tax neutrality, maintain revenue stability, and give Nebraska a competitive edge.

Full report: A Twenty-First Century Tax Code

Richard Borean
Communications Director
Tax Foundation

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