Nebraska Think Tank Proposes $1.6 Billion in New Service Taxes to Cover Budget Gap
A report suggests taxing haircuts, medical care, and fuel to offset a projected $1.2 billion deficit and protect recent income tax cuts.
By Daphne Turner ·
Nebraska lawmakers face a difficult choice regarding the state's tax structure as the budget deficit approaches $1.2 billion for next year. A new report from the Platte Institute offers a path to close that gap by ending sales tax exemptions on services.
The nonpartisan group estimates that taxing services such as hair care, medical care, and motor fuel would generate more than $1.6 billion by 2028. The proposal aims to strengthen the state's shrinking sales tax base. This move would follow Gov. Jim Pillen's signature on LB 754 in 2023, which reduced income taxes from nearly 7% to just under 4% by January 2027.
Platte Institute CEO Jim Vokal described the current tax code as inconsistent. He noted that Nebraska taxes lawnmowers but not lawn care, and washing machines but not laundromats. Vokal argued that the state is now a service-based economy, unlike in 1966 when the current sales tax structure was established.
"We have a significant amount of services and goods that are exempt from sales tax. Most states don't, and there's no rhyme or reason on how we've made those decisions," Vokal said. He added that the decisions are often based on the strength of lobbyists in Lincoln rather than sound tax policy. Vokal called the report a "menu of options" for lawmakers rather than a fixed plan.
Reactions to the proposal were mixed among local figures. Dr. Farrah Plate, a dentist in Nebraska, criticized the idea of taxing medical and dental care. "When I read it, I thought, we already have a health care crisis. So the last thing we want to do is add to the health care crisis," Plate said. She described passing the tax burden to Nebraskans as "ludicrous."
Sen. Brad von Gillern, chair of the Unicameral's revenue committee, said the legislature attempted to modernize tax policy in 2023 and 2024 but found the changes unpopular. He supports taxing luxury and discretionary items but opposes taxing necessities. "I am adamantly against taxing necessities like water, food, medical care, and expenses that have a greater impact on families of modest means," von Gillern said.
The state's 49 senators will convene on Jan. 6, 2027, for the first day of the 110th legislative session. They will take up the question of whether a broader sales tax base is necessary to afford the planned income tax cuts.
