Nebraska first implemented property tax relief payments in 2007, and by 2024, they had ballooned to nearly $1.5 billion annually. Had Nebraska lawmakers instead reformed the property tax system and imposed limits on local government spending, they would now have over a billion extra dollars available to fund other needs.
Nebraska’s proximity to Iowa provides a sterling example of how taxpayers can win as state’s put forth competing tax policies. In response to Iowa’s shrinking income tax rates and retirement-tax elimination, Nebraska’s legislature enacted significant income tax cuts of their own in 2023 to remain competitive with their neighbors to the east. But they failed to balance these cuts with corresponding spending restraint — a critical oversight that has led to financial distress.
Since November of last year, Nebraska lawmakers have been grappling with a budget shortfall due to revenue falling below expectations. The state’s excessive spending, much of it attempting to provide property tax relief, combined with the reduced tax revenue to create a fiscal crisis. More than a quarter of Nebraska’s General Fund is allocated toward property tax relief programs. Yet, as local governments continue increasing spending and driving up property taxes, the financial strain on the state persists.
Worsening the problem, the federal government is reducing the percentage of Medicaid costs it covers for Nebraska. This reduction contributes to a projected $457 million shortfall for the 2025–2027 fiscal years. One proposed solution to address this deficit is to halt the income tax cuts and redirect revenue to balance the budget. However, this move would hurt Nebraska’s competitiveness and its economy, making revenue levels that much more difficult to sustain. Given the state’s constitutional requirement to maintain a balanced budget, lawmakers are left with two options: reduce spending or increase taxes.
A Flawed Approach to Property Tax Relief
Rather than addressing the root cause of rising property taxes — uncontrolled local government spending — some Nebraska lawmakers are considering extending an income tax credit for school property taxes. This approach merely creates a back door to further shift tax burdens, perpetuate a broken system, and exacerbate the state’s deficit without solving the underlying problem.
A short-term fix like this can have long-term consequences. Nebraska first implemented property tax relief payments in 2007, and by 2024, they had ballooned to nearly $1.5 billion annually. Had Nebraska lawmakers instead reformed the property tax system and imposed limits on local government spending, they would now have over a billion extra dollars available to fund other needs.
The results are clear: On a per capita, inflation-adjusted basis, property tax collections in Nebraska have never been higher. Small, technical adjustments and increased state spending have failed to rein in tax growth, proving that a fundamental reform — rather than continued financial Band-Aids — is necessary.
Iowa’s Cautious and Strategic Approach
Fortunately, Iowa has taken a more-disciplined approach to tax policy. The state has successfully reduced tax rates while keeping government spending in check. Unlike Nebraska, Iowa has built up financial safeguards, including fully funded reserve funds and the Taxpayer Relief Fund, to ensure long-term fiscal stability as tax rates have been reduced.
Current property tax proposals before the Iowa legislature reflect this careful planning. Lawmakers are considering a 2% cap on property taxes to prevent unchecked growth. By learning from Nebraska’s mistakes, Iowa can set a national example for responsible property tax reform. Avoiding policies that shift financial burdens from local governments to the state will maintain fiscal security while ensuring long-term competitiveness.
Smarter Policy, Stronger Future
Nebraska’s tax policy serves as a stark warning: Cutting taxes without curbing spending growth leads to financial instability. Iowa is in a strong position to implement effective property tax reform, maintaining disciplined spending while avoiding the pitfalls that have ensnared its western neighbor. With careful planning and prudent fiscal management, Iowa can emerge from this decade as a leader in sustainable tax policy, ensuring economic growth without jeopardizing financial security.
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