A proposal that would raise the state’s sales tax by 1% would add to what all Nebraskans pay for goods and services, placing a greater tax burden on average-income taxpayers while high-wage earners feel minimal impact.
Today, the Revenue Committee will consider LB 1315, which hikes the state income tax rate from 5.5% to 6.5% as a key piece of the Governor’s plan to reduce property taxes paid by property owners. The tax shift, as proposed, would move Nebraska’s state sales tax rate from 29th among states to a tie for ninth, and Nebraska would join Kansas with the highest state sales tax rate among border states.
The 1% hike would generate $467 million in its first full year, funds that the Governor proposes to use to replace revenue raised for cities, counties and schools through property taxes. In FY 2021, property tax revenues per capita in Nebraska amounted to $2,172, the 12th highest among states.
The sales tax is Nebraska’s most regressive tax, and an increase in the state sales tax rate would disproportionately affect the state’s lower-earning families. Nebraska’s sales tax is charged on many goods and services considered necessities, like cars, clothes and school supplies, and modeling on LB 1315 indicates that the top 20% of earners would feel half the impact as a share of their income as the 80% of Nebraskans with annual incomes of $146,000 or less.
In recent polling by Holland Children’s Institute, 63% of respondents – nearly 2 out of every 3 Nebraskans – said the state is not doing enough to help average-income families to succeed. And this proposal to raise taxes on these families to provide property tax relief comes just one year after policymakers prioritized income tax cuts that overwhelmingly benefit top earners.
Those income tax cuts will reduce state revenues by nearly $3.1 billion over five years.
The Revenue Committee meets at 1:30 p.m. OpenSky will provide updates on X.
Watch livestream of hearing on Nebraska Public Media
Register today for Sales Tax webinar
Join us on Tuesday, Feb. 13 for a noon-hour webinar diving into sales tax policy with two tax policy experts. Stacy Watson, a Tax and Consulting Shareholder at Lutz and chair of the Nebraska Chamber of Commerce’s Taxation Council, and Richard Auxier, senior policy associate in the Urban-Brookings Tax Policy Center, will discuss regressive and progressive tax types, explore the concept of “ability to pay,” and discuss the implications of raising the sales tax in Nebraska for Nebraska taxpayers, Nebraska businesses and state revenues.