LINCOLN, Neb. (AP) — Nebraska took a big step toward phasing out taxes on Social Security income on Monday, but lawmakers said they might limit the benefit for higher earners.
Lawmakers gave initial approval, 47-0, to a bill that would eliminate the tax over 10 years. Two additional votes are required before the proposal heads to Gov. Pete Ricketts.
Nebraska has roughly 320,000 residents that rely on some form of Social Security, either as a retirement, disability or survivor benefit, said Sen. Brett Lindstrom, of Omaha, who sponsored the measure. Nationally, the benefit goes to more than 64 million Americans.
Nebraska is one of 13 states that tax the benefit, although some low-income residents don’t earn enough to be taxed by the state.
Still, Lindstrom argued that imposing the tax creates an incentive for higher-income earners to leave the state, depriving Nebraska of people who might volunteer or choose to continue working and paying taxes. Several neighboring states, including Iowa, have already exempted the benefit from taxation.
“If we eliminate the tax on Social Security, we’ll have more people stay in Nebraska and retire,” Lindstrom said.
Lindstrom initially proposed a five-year phaseout, but members of the tax-focused Revenue Committee stretched the timeframe to 10 years to soften the impact of lost tax revenue on the state. It’s not clear how much the new, revised proposal will cost the state, but the original measure would have cut revenue by $138.5 million over the next by the middle of 2027.
The bill could change depending on the outcome of the Nebraska Economic Forecasting Advisory Board’s meeting later this week. The board predicts how much tax revenue the state will collect, and its projections will determine how much extra money lawmakers have at their disposal in the current legislative session.
Some lawmakers raised concerns that lawmakers haven’t done enough to address property taxes, especially in rural areas whose schools are too small and land-rich to qualify for state equalization aid.
“When we look at all of the bills that are coming to the floor with a fiscal impact, we’re gong to have to start making some choices,” said Sen. Curt Friesen, of Henderson.
Others said took issue with taxing a benefit that benefits primarily the elderly and retirees on fixed incomes.
“This is something they earned by working their entire lives here in Nebraska,” said Sen. Carol Blood, of Bellevue. Blood said lawmakers “don’t blink twice when giving out corporate welfare” in the form of tax benefits, but want to quibble over a benefit collected by residents of modest means.
Lindstrom said he plans to keep on the bill before its next vote and was willing to discuss changes that would limit the tax benefit for people with higher incomes.