Brewer expected to propose repealing Nebraska’s income tax

Word is getting out on social media that state Sen. Tom Brewer plans to introduce a constitutional amendment in the 2020 Nebraska Legislature which would propose repealing Nebraska’s income tax.

Nebraska levies taxes on individual and corporate income earned in the state.

The marginal tax rates can increase to as high as 6.84% on individual income and 7.81% on corporate income, respectively the country’s 15th and 16th highest rates according to the Small Business & Entrepreneurship Council.

Realistically, there’s little chance Brewer’s amendment would advance through the Unicameral and appear on voter ballots.

Income taxes are the state’s single largest funding source. While the text of the proposed amendment has not yet been released, eliminating the personal and corporate income tax would require cutting or replacing roughly $2.7 billion in the state’s annual budget and would naturally prevent the state from using income tax revenues to offset local property taxes.

Much more modest reductions of Nebraska’s income taxes have been blocked in the Revenue Committee or filibustered in past years.

While many states Nebraska competes with and lives alongside levy lower or no income tax, the politics of even reducing the current rates have been perilous. Rural legislators feel greater pressure to find a solution for property taxes, while urban legislators may be pushed for more funding for programs supported by Nebraska’s high income tax rates.

Still, Brewer is right to point out that income taxes are a major part of Nebraska’s cumulative tax burden and a contributor to lobbying for special tax incentives.

The Nebraska Legislature created the state’s income tax in the 1960s to replace the voter-repealed state property tax. Unfortunately, local property taxes have only increased along with the income tax.

Past Platte Institute surveys and polling seem to indicate Nebraskans would prioritize property tax reform over state income tax cuts, but would also reject raising their state income taxes as part of the answer.

Personally, I think voters are right to be skeptical of income tax hikes. The property tax may seem higher and more at risk of increasing year to year for the average Nebraskan, but the state income tax is still a real factor in raw dollars.

People get angrier about a property tax bill totaling in the thousands than a smaller amount withheld on a little-noticed paystub, but with each payday, state income taxes can add up to similarly striking annual figures.

In my middle-income family’s case, after experiencing the sticker shock of our property taxes, the state income tax nearly doubles the amount we pay, not including any other tax.

While states do have to find other ways to pay for government if they forgo income taxes, voters generally express strong support for continuing that policy and pay lower taxes overall than in Nebraska.

In 2016, every state without a personal or corporate income tax collected fewer taxes per capita when compared with Nebraska.

The list of states that don’t levy income taxes features red states like South Dakota and Texas and blue states including Washington and New Hampshire.

In Tennessee and Texas, voters have passed their own constitutional amendments prohibiting individual income taxes from being levied.

The debate over repealing Nebraska’s income tax may be more academic than practical for the moment, but it can also highlight an important problem for Nebraska’s policymakers to solve. While several states are proudly income or sales tax-free (as Nebraska once was), our current tax code lacks any break for Nebraskans that seems worth celebrating.