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Social Security state income tax exemption sails ahead
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Social Security state income tax exemption sails ahead

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The Legislature on Monday gave commanding 47-0 first-round approval to a proposal to totally phase out state income taxation of Social Security income over a 10-year period, a move that would reduce state revenue by more than $130 million a year when fully implemented.

However, state senators informally agreed to revisit the issue after reviewing a new state revenue forecast that is due Thursday.

A number of lawmakers expressed concern that the estimated loss of anticipated future revenue could limit the prospects for additional property tax reduction.

Sen. Brett Lindstrom of Omaha, sponsor of the legislation (LB64), said only 13 states tax Social Security income, and he suggested that "more people may decide to stay in Nebraska to retire" if they are relieved of that portion of their tax burden.

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In addition, he pointed to the need to assist Nebraskans whom he described as "vulnerable seniors living on fixed income."

Sen. Mike Flood of Norfolk suggested a phased-in approach that would assist Nebraskans at lower-income levels, pointing to a proposal authored by Sen. Tom Brewer of Gordon. 

Brewer said his bill (LB237) would tie Social Security tax exemptions to the level of a taxpayer's income, with a cap on eligibility set at $95,000 for a married couple and $80,000 for a single taxpayer

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That's a "more targeted" option that senators might yet want to consider, he said.

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"Give relief to those who need it (and not) up to a cost that we can't manage," Brewer said.

Revenue Committee Chairwoman Lou Ann Linehan of Elkhorn said Nebraska is "not competitive with neighboring states" in terms of tax policy and that is a factor in prompting Nebraskans to move to southern states upon their retirement.

The Social Security tax break would allow Nebraskans who are limited to a fixed income to "live with greater dignity and better independence," Sen. Mark Kolterman of Seward said.

Sen. Curt Friesen of Henderson noted that the bill's "substantial fiscal impact" needs to be closely considered in view of the state's continuing need for additional property tax relief.

"We have to start making some choices," he said. "How much money can we give away? What will the revenue stream look like three or four years from now?"

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Sen. Bruce Bostelman of Brainard urged senators to "take a stepped measure," bearing in mind that "we also need property tax relief."

Linehan said the bill is crafted as "a 10-year plan with plenty of off ramps," a measure that can be adjusted if necessary.

Retirees with incomes of more than $114,000 a year would receive two-thirds of the tax cut benefits if the bill is fully implemented, according to a study by OpenSky Policy Institute, which opposes the measure.

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Reach the writer at 402-473-7248 or dwalton@journalstar.com.

On Twitter @LJSdon

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