Of all the problems and challenges facing Nebraska’s overall tax system, the inheritance tax is not at the top of the list. It affects a relatively small number of individuals and families, many of whom could minimize the impact — or avoid it entirely — if preparations were made in advance with the help of a tax attorney or estate planner.
But the inheritance tax continues to draw scrutiny among state legislators, and not without good reason.
Nebraska is one of just six states that still levies a tax on inherited property and financial assets. A proposal under consideration this legislative session has been introduced by Sen. Robert Clements of Elmwood that would reduce the tax rates and increase exempted amounts by about half.
Sen. Clements argues that recent large increases in property values, especially on farmland, have created an unfair windfall of revenue for the state’s counties, which collect the inheritance tax.
As in the past when this issue has been up for debate, representatives of Nebraska counties lead the way in arguing that the proposed solution is worse than the disease. They argue — with merit — that the inheritance tax has a greater good because it is used to reduce property taxes, finance special projects or respond to emergencies.
Take that away and counties would have no choice but to raise property taxes when emergencies arise. That would affect all property owners while the inheritance tax only impacts a much smaller percentage.
What’s more, former state Sen. Lavon Heidemann, a farmer and now a member of the Pawnee County Board, said his family didn’t mind paying the inheritance tax because they had realized a substantial gift of new land.
Yet it’s worth pointing out that other tax-levying government entities have to make do without having inheritance tax revenue serve as an emergency fund. So, why should counties have that advantage, supporters of Sen. Clements’ bill might ask.
Currently, siblings of the deceased pay a 1% tax, with the first $40,000 in inheritance exempted from taxation. Nieces and nephews who inherit pay a higher rate, 13%, and get only a $15,000 exemption, while non-relatives pay an 18% tax and get a $10,000 exemption. Under Sen. Clements’ Legislative Bill 310, the rates would be lowered, by 2024, to .5% for siblings, who would get a $160,000 exemption. The rate for non-relatives would fall to 9%, and they would get a $45,000 exemption.
We can appreciate both sides of this argument. But if the goal is to modernize and reform Nebraska’s tax system, then Sen. Clements’ bill seems worthy of consideration. It would lessen the impact of the tax while still providing counties with some revenue for use in case of emergencies.