Nebraska’s tax system is ‘upside down,’ report claims

LINCOLN — The state’s tax system is “upside down,” with low- and middle-income Nebraskans paying a higher share of their income on taxes than more affluent residents, a watchdog group said Tuesday.

The Lincoln-based OpenSky Policy Institute, citing a new national report, said that Nebraskans who are among the lowest 20% of wage earners pay an effective state and local tax rate that is 56% higher than those with the top 1% of incomes.

OpenSky, which assesses state tax and budget policies, warned that the disparity will grow as recently passed cuts in state income taxes are phased in or if the state shifts the tax load more heavily onto sales taxes.

OpenSky Executive Director Rebecca Firestone said state lawmakers have crafted policies that have led to low- and middle-income families paying higher effective tax rates than the wealthy.

“These choices obviously have implications for taxpayers but also for the revenue available to fund the schools, roads and public safety that Nebraskans rely on,” Firestone said.

OpenSky cited the newest edition of the “Who Pays?” report from the Washington, D.C.-based Institute on Taxation and Economic Policy, a liberal leaning nonprofit.

That report, which analyzes the economic progressivity and regressivity of state tax systems, stated that in Nebraska, households with the lowest 20% in incomes (less than $30,000) paid 11.2% of their earnings on taxes and the middle 20% (incomes of $52,500 to $89,400) paid 11%. Meanwhile, the top 1% income households (over $557,100 in income) paid 7.2%, and the top 5% (over $252,600) paid 9.1%.

Aidan Davis, state policy director for the Institute on Taxation, said a lot of states have shifted their tax policies in recent years to become “even more regressive” by enacting tax cuts for the wealthy.

Nebraska has the 30th most regressive tax system in the nation, the report stated.

But OpenSky said that if the phased-in personal and corporate income tax cuts passed last year — gradually dropping those rates to 3.9% — were fully implemented in 2024, the state would drop to the 20th most regressive.

The report stated that sales taxes in Nebraska were the most regressive tax, with low-wage families paying almost five times more as a share of their income than the families who were most affluent.

Gov. Jim Pillen, citing Nebraska’s high property taxes, has recently floated the possibility of increasing state sales taxes, or eliminating some exemptions on sales taxes, to provide tax relief.