LINCOLN, Neb. (AP) - Lawmakers are poised to act this session on income tax cuts aimed at Social Security recipients and veterans who agree to launch a new career or business in Nebraska after they retire.
Senators will also debate a bill that would ensure Nebraska’s income-tax brackets keep pace with inflation, while giving a greater tax break to low- and middle-income Social Security recipients.
The bills were introduced in the wake of a legislative tax study last year, and calls by Gov. Dave Heineman to lower Nebraska’s income and property taxes.
The tax-bracket bill would address cost-of-living salary increases that can bump taxpayers into a bracket with higher rates. The proposal would save taxpayers roughly $100 million over a decade that the state otherwise would have collected because of inflation, said Sen. Galen Hadley, chairman of the Legislature’s Revenue Committee.
“It’s a very significant bill,” said Hadley, of Kearney.
Nebraska’s top tax rate of 6.84 percent kicks in for married couples once their incomes exceed $70,400. For single filers, the top rate goes into effect at $35,200. The rate only applies to the income received at those levels and higher.
It also would increase the state’s tax exemptions for Social Security income. Married couples with adjusted gross incomes of less than $58,000 wouldn’t have their Social Security benefits taxed; nor would other taxpayers who make less than $43,000.
Hadley said he wants to follow the recommendations of a Tax Modernization Committee, which released its findings in December after a series of summer hearings. The legislative panel concluded that no major changes were need, because Nebraska’s tax system is similar to those in other states.
Hadley said he plans to launch a legislative study this summer of Nebraska’s tax exemptions and deductions. Eliminating some of those tax breaks would help Nebraska lower its overall rates while still allowing the state to pay its bills, he said.
“I recognize that our highest tax rate kicks in too soon, and it’s probably a little high,” Hadley said. “That’s something we have to work on. But there’s no easy, quick fix.”
The future of a more aggressive income-tax measure remains unclear. The bill, backed by the Nebraska Chamber of Commerce & Industry, would lower both individual and corporate income tax rates. It also would eliminate one of the state’s tax brackets and expand the others, so that a larger share of income would be taxed at lower rates.
The bill’s sponsor, Sen. Burke Harr of Omaha, said he was concerned the proposal wouldn’t be sustainable. The original measure would cost the state an estimated $403.8 million in lost revenue by fiscal year 2016, and the amount is projected to grow each year.
“We’re still trying to find something that’s viable,” Harr said.
Harr said he also wants to ensure that any income tax cuts include the lower brackets, so that low- and middle-income families see a benefit.
“I don’t think you can just do the top rate,” he said. “I think you have to do it across the board. It’s a fairness issue.”