If you are a Nebraskan reading this, you are most likely in the same state income tax bracket as Warren Buffett, Walter Scott and Gov. Pete Ricketts.
Congratulations! Also, I’m sorry.
I’m happy that you are hanging out in the tax bracket penthouse with Warren and Pete, but I regret to inform you that this isn’t because you have just been promoted to CEO or hit the Powerball jackpot. You are sitting in Nebraska’s top income tax bracket because you reside in a state where that top bracket doesn’t kick in at $1 million, or a half-million dollars, or even $200,000.
The highest income tax bracket in Nebraska starts at $30,420.
I bring this up because our income tax system — specifically, the relatively scant percentage that Nebraska’s wealthiest pay in state income taxes — is the focus of an increasing amount of interest in the Nebraska Legislature.
A growing, bipartisan group of state lawmakers seems to genuinely want to lower your property taxes. And some think that the only real way to do so is a tax shift that would, among other things, squeeze more money from the state’s richest people.
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“We need to control spending, but we can’t slash and burn our way to property tax relief,” said Sen. Tom Briese, a Republican from Albion and a farmer who has introduced a property tax relief bill again this year.
“It has to be accomplished by replacing with other forms of revenue. One component of that is a high-income surcharge.”
The property tax relief bill that Briese introduced in the Nebraska Legislature last week includes a small surcharge on Nebraska residents who make more than $250,000 a year, or couples who together earn more than $500,000.
Another Nebraska senator, Omaha Democrat Tony Vargas, has introduced a bill that would add tax brackets and raise taxes on richer Nebraskans, though he plans to spend that money on lower- and middle-class tax cuts instead of property tax relief.
Briese expects his tweak, which wouldn’t create a new tax bracket, to raise roughly $44 million each year, which would be put toward lowering property taxes. Bigger chunks of money in his $500 million property tax relief bill come from a slight sales tax increase, an increased cigarette tax and the elimination of sales tax exemptions for candy and pop.
“It’s a fair, reasonable way to raise revenue,” he told me of the tax increase on our richest residents.
Nebraskans appear to agree.
The national polling firm Targetsmart recently asked Nebraskans how they felt about raising state income taxes on high earners if it would help balance the budget or fund “core state responsibilities” like schools or law enforcement.
A giant majority, 78 percent of those surveyed, said they favored raising state income taxes on people making more than $1 million a year. And 72 percent of Nebraskans supported raising taxes on fellow Cornhuskers who make more than $500,000 a year, according to the poll, which Targetsmart, a left-leaning data firm, conducted on behalf of Nebraska’s OpenSky Policy Institute.
One Nebraskan who doesn’t appear to agree is Gov. Pete Ricketts. In a recent interview with The World-Herald, he all but promised to veto any bill that hits his desk that would pay for property tax relief partly by boosting other taxes.
“I won’t be able to support anything that is actually raising taxes like that,” he said.
The governor’s own property tax plan, unveiled Tuesday, would cap the amount that property taxes could increase moving forward — another idea that seems likely to be popular in polling. But there are concerns that this plan would do little to help Nebraskans and Nebraska farmers now. There’s also worry that a cap could strangle local governments and harm schools .
But the governor appears to believe that property tax relief should be achieved only through future spending cuts. His father, billionaire TD Ameritrade founder Joe Ricketts, said last week that he lives in Wyoming because of the “huge, huge” tax differences between our state and that one. Wyoming has no state income tax.
“You don’t punish people just because they’re successful,” Joe Ricketts said. “You shouldn’t punish people for working hard.”
What’s interesting is that in certain ways, Nebraska’s “effective tax rate” — the actual percentage of earnings we pay to the state after various tax rules and deductions — appears to currently treat ultra-rich Nebraskans quite kindly, especially when compared with those a rung or two lower on the wealth ladder.
When I teased you earlier about being in a big-shot tax bracket, I left out a key fact: Being in the same top tax bracket as your boss doesn’t actually mean that you give the state the same percentage of your earnings as she does.
The reasons for this are complicated, and terrible dinner party conversation unless you’re invited to a dinner party of accountants. But here’s the end result: Middle-class Nebraskans pay roughly 2 percent of their actual earnings in state income tax, according to numbers provided by the Nebraska Department of Revenue. It climbs from there, with upper-middle-class Nebraskans paying roughly 3 percent and truly affluent Nebraskans — the state’s richest 10 percent — paying almost 5 percent of their earnings in “real” state income taxes.
Except, when you reach the very richest Nebraskans, the multimillionaires and billionaires whom you would expect to pay the largest share of income tax ... they simply don’t.
The 500 richest Nebraskans earned at least $2.2 million a year in adjusted gross income in 2014, according to the latest available Department of Revenue data. In 2016, those 500 paid an effective tax rate of 3.5 percent. That’s about the same as upper-middle-class Nebraskans pay.
Why? Because multimillionaire Nebraskans derive much of their income from investments that aren’t taxed by the state like your paycheck is. Many also own companies and thus take advantage of business tax breaks.
So, in reality, you may not be paying as much state income tax as your boss. But you actually may be paying as big a share of your income as your boss’ boss’ boss.
In normal times, the Nebraska Legislature probably wouldn’t make much of a fuss over this. These are not normal times.
In 2019, many state senators, and many of their constituents, desperately want property tax reform. Our property tax rate remains one of the highest in the country. That’s especially painful in rural Nebraska, where corn and soybean prices have tanked but land values remain relatively high. And it’s also highly bothersome to urban and suburban homeowners across the state. Property taxes are the sort of issue that can unite rural and urban, Democrat and Republican, in our mutual distaste.
Briese, the Republican state senator from Albion, and Renee Fry, the director of the Lincoln-based OpenSky Policy Institute, say state lawmakers increasingly see no path forward for meaningful property tax relief without some hikes to high-earner income taxes, sales taxes or both.
“I think it if was ever gonna happen, it’s gonna be this year or next year,” Fry said of a tax shift away from property taxes. “There’s a clear motivation. The question remains: Can they come together?”
If the Nebraska Legislature does, and overrides a gubernatorial veto, then maybe Nebraska’s highest earners will be placed in a de facto tax bracket that’s higher than the one us cubicle dwellers are slotted into.
Then, you might not be able to hang out with Warren and Pete anymore. But let’s be honest: In this case, you don’t want to.