A Twenty-First Century Tax Code for Nebraska

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 21st.

The state’s above-average individual income tax rates disadvantage 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 stability.

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 triggers.

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 taxes.

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.

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