The One Big Beautiful Bill introduces sweeping changes to federal fiscal policy that will have tangible impacts on the state of Nebraska. Policymakers must choose which provisions to adopt of the federal law and which to defer. These decisions will have significant budgetary and growth implications for Nebraska.
On the tax side, the OBBB makes several changes to which Nebraska can choose to conform (adopt) or decouple (reject). Of particular importance is that the OBBB makes full expensing permanent for research and experimentation and for machinery and equipment. It also introduces temporary full expensing for production facilities – a significant shift from the normal 39-year depreciation schedule for structures. The OBBB also makes changes to global taxation that have strong state implications.
OBBB Tax Changes
In the individual tax code, the OBBB makes the federal tax rates and standard deduction permanent, and grows the child tax credit from $2,000 to $2,200. These policies were going to expire at the end of 2025 and revert to tax rates that existed before the 2017 Tax Cuts and Jobs Act. Making these policies permanent keeps the federal tax code largely the same for individuals, which has minimal state implications.
Nebraska policymakers will need to decide whether to adopt the more populist individual changes from the OBBB. These include no tax on tips, no tax on overtime, and a deduction for auto loan interest. These changes are popular, costly, and do not have a large growth impact. Nebraska officials should focus on federal guidance to factor in the ease of implementing these programs, and then also how much of a revenue cost it has for the state. Another important factor is that these changes are temporary – they expire at the end of 2028.
Changes to the business tax code will require additional consideration and will have a greater state impact. In fact, Nebraska should maximize its opportunity to accelerate its growth trajectory by adopting the OBBB’s broad and powerful incentives for new capital investment. In addition, Nebraska will be forced to reconsider its taxation of global business income.
The OBBB made full expensing, also known as 100% bonus depreciation, permanent for research costs and for machinery and equipment costs. Nebraska should incorporate these changes into its tax code to be sure to attract reshoring investments.
In addition, for the next four years the federal tax code will allow for an immediate write-off of new capital expenditures in what the tax code calls Qualified Production Property. This is a critical incentive Nebraska should adopt to target development in manufacturing, production and refining. In short, from 2025 through 2028, new investments in production facilities can be written off immediately against taxable income rather than depreciated over 39 years. This represents a massive incentive to invest in U.S. reindustrialization, and one that Nebraska ought to lead on.
Finally, the OBBB changed the taxation of international business income that requires lawmaker attention. The 2017 Tax Cuts and Jobs Act created taxation of Global Intangible Low Taxed Income (GILTI). Taxing GILTI was already a stretch for states given that their taxing authority is supposed to end at U.S. borders. The new net CFC-tested income (NCTI) changes the extraterritorial tax base.
GILTI taxed only “supernormal” foreign earnings to get at profit-shifting to low-tax jurisdictions. For example, a company might shift intellectual property to Ireland in order to pay the lowest possible corporate rate (Ireland’s rate is 12.5%) on all global earnings attributable to the high-return intellectual property.
The change to NCTI brings all foreign corporate earnings into the tax base rather than just supernormal returns that represent profit-shifting. Net-net, the new tax base for NCTI is much larger than the previous tax base for GILTI. That means Nebraska will pull in more international activity into its state business tax base.
Taxing NCTI will make less sense than taxing GILTI, which itself made little sense. Nebraska should decouple from this provision of the Internal Revenue Code in order to avoid a significant disincentive to global corporations increasing their in-state footprint and sales.
The OBBB contained several reforms to Medicaid and other social-welfare programs. We will analyze those in a future blog to consider the fiscal implications for Nebraska.
