LINCOLN — After George Sedlacek retired as an art teacher last May, he found out what a lot of retirees discover: Lots of states have lower taxes on retirees than Nebraska.
“It would not be hard for me to move to Colorado or Kansas and find a mountain or a lake,” said the 64-year-old Lincoln resident. “The general perception is that Nebraska is not the place to retire if you want to save on taxes.”
Sedlacek was among those urging state lawmakers Wednesday to provide more tax breaks for retirees to discourage their exodus from the state.
It was the first day the Legislature's Revenue Committee took testimony on ideas spawned by the Legislature's months-long study of tax modernization.
Two of the bills have been described as the “low-hanging fruit” that drew the most support from lawmakers on the Tax Modernization Committee.
No one testified against the two bills. But State Sen. Galen Hadley of Kearney, who introduced the bills as chairman of the Revenue Committee, said their passage will likely hinge on whether the state can afford to reduce tax revenue for such state obligations as K-12 schools and higher education.
“These are important bills, but we've got to weigh them against the consequences,” said the senator, a former college professor.
The two bills are co-sponsored by a majority of the Revenue Committee, which suggests they'll likely be advanced for debate by the full Legislature:
» Legislative Bill 986 expands the state's homestead tax exemptions for the elderly, veterans and disabled. More homeowners, age 65 and older, would qualify, and more would get 100 percent exemptions of property taxes under LB 986, which would cost $4.6 million to $4.8 million more a year.
In 2014, married couples with up to $31,600 in income will get a 100 percent exemption under current law. That bracket would expand to a maximum income of $34,700 under the bill. Couples with incomes up to $50,000 would get at least a partial exemption. That ceiling now is $46,900.
» LB 987 requires that state income tax brackets be adjusted annually for inflation and increase state exemptions on Social Security income.
Nebraska is one of the few states that offer no greater tax breaks on Social Security than are offered by the federal government. LB 987 would change that by exempting benefits that are currently taxable for married couples filing jointly with adjusted gross incomes of less than $58,000 and for all others with incomes less than $43,000.
That tax break would cost about $28 million a year.
Indexing income tax brackets is something the federal government does, but it has never been done with state income taxes. It would prevent “bracket creep,” which occurs when a person's income rises to keep up with the cost of living and pushes that person into a higher tax bracket.
The cost of indexing tax brackets is cheaper initially, $5 million in the first year, but it would grow to $35 million after four years.
Renee Fry of the Lincoln-based OpenSky Policy Institute said her organization was concerned about the high cost of expanding tax breaks on Social Security and how it might impact funding of state services.
She said that cutting tax rates has little impact on the outmigration of senior citizens and that about 69 percent of the Social Security paid to Nebraskans is already exempt.
The Revenue Committee took no action on the tax bills. It has scheduled public hearings on more tax reform ideas later this week and next week.