Exempting retirement income from state tax debated in Legislature - Omaha.com
Published Thursday, January 31, 2013 at 1:00 am / Updated at 3:49 am
Exempting retirement income from state tax debated in Legislature

LINCOLN — Retiree John Jensen has an old friend in Texas who wants to move back to the Omaha metro area.

But the friend knows Nebraska offers no special tax breaks for Social Security income, while Iowa does. The policy difference could cost the friend a few thousand additional dollars to live west of the Missouri River, Jensen said.

So if the friend moves, it likely will be to Council Bluffs.

“Nebraska is not a retiree-friendly state,” said Jensen, a retired teacher who lives in Omaha.

Jensen related the anecdote Wednesday to the Legislature's Revenue Committee, which held hearings on a trio of bills that would exempt from state tax all or part of Social Security income. All three measures were brought independently of Gov. Dave Heineman's tax reform proposal, which seeks to abolish all income taxes by charging sales tax on some currently exempt goods.

Depending upon the bill, the measures discussed Wednesday would reduce state revenue from $6 million to nearly $82 million per year. That money would have to be made up either through additional revenue sources or cuts to governmental programs or services.

Several committee members sounded unconvinced that Social Security exemptions would suddenly make Nebraska a retirement mecca.

“If everything is so great in Council Bluffs, why is Omaha so much bigger?” asked Sen. Galen Hadley of Kearney, chairman of the Revenue Committee.

Hadley said he's skeptical of those who insist Social Security taxes are the sole reason retirees move out of the state. Warmer climates, second-career opportunities and being closer to children and grandchildren also factor in such decisions.

The senator also pointed to an AARP ranking that listed Omaha as a top 10 retirement city because of its affordable cost-of-living, stable economy and vibrant arts and entertainment scene.

On the other hand, more people between the ages of 65 and 69 leave Nebraska than move in, said David Drozd with the Center for Public Affairs Research at the University of Nebraska at Omaha. Drozd, who was neutral on the bills, said the state ranks 48th in net population loss for the age category. It ranks 44th for all ages 65 and above.

Considering about 472,000 baby boomers live in Nebraska — representing one-quarter of the state's population — it would behoove policymakers to find ways to encourage them to stay as they move into retirement age, Drozd said.

While his analysis of census data doesn't attribute a single cause to outmigration of retirement-age Nebraskans, he shared with the committee something his own financial planner told him.

“Nebraska is a great place to work, not such a great place to retire,” Drozd said.

Most of the testimony centered on Legislative Bill 17, introduced by Omaha Sen. Jeremy Nordquist. The proposal would exempt Social Security benefits for individuals with incomes of $60,000 or less and couples with incomes of $80,000 or less. Under current state law, the income thresholds are the same as those used by the federal government — $25,000 for individuals and $32,000 for couples.

Nebraska is one of five states that offers no special tax break on Social Security income.

Nordquist said his approach would target the tax relief to middle and lower income retirees. “To me, it's a matter of fairness and getting dollars to low-income seniors,” he said.

James Cavanaugh, an Omaha attorney who specializes in Social Security law, pointed out that reducing the tax load on Social Security income also would help those who receive the benefits for long-term disabilities. Many of his clients live month to month on whatever incomes they can cobble together, he said.

“They will spend every penny they get from this,” he said, arguing the tax cut would turn over in local economies where senior citizens live.

AARP Nebraska also testified in support of the measure, as did Roger Rea of Omaha, who represented the retired members of the Nebraska State Education Association.

“It's time to return that money to its rightful owners,” Rea said.

The committee also held a hearing on LB 74, introduced by Sen. Charlie Janssen of Fremont, which would exempt all Social Security benefits in Nebraska from income tax.

The other bill discussed was LB 238, sponsored by Bellevue Sen. Sue Crawford. Her bill would exempt from tax up to $30,000 in individual retirement income, or $60,000 for couples. The income sources can include Social Security, public pensions and military benefits.

The committee took no action on the bills Wednesday.

Contact the writer: 402-473-9587, joe.duggan@owh.com

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Contact the writer: Joe Duggan

joe.duggan@owh.com    |  

Joe works in the Lincoln bureau, where he helps cover state government, the Legislature, state Supreme Court and southeast Nebraska.

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