Despite the large military presence in Nebraska, the Cornhusker State lags behind its neighbors on how it treats benefits earned by those who have retired from military service.
Gov. Pete Ricketts, though, has unveiled an appealing plan to shrink that disparity and the tax burdens faced by those veterans. His proposal to exempt half of retirement payments made by the Department of Defense from state income taxes is a sound one, reducing inequities in state law while also placing Nebraska closer to the level of adjacent states.
Nebraska offers recent retirees a chance to protect a portion of their benefits. But the current system is complex – a 40 percent exclusion over a seven-year span or a 15 percent exclusion after the retiree turns 67 – and completely unavailable to veterans who retired before July 18, 2012.
Halving the income tax liability veterans owe for their retirement benefits makes the system much clearer, fairer and simpler to navigate for the state’s estimated 13,000 military retirees.
It also places Nebraska in a more favorable position compared to its bordering states. Colorado is the only of Nebraska’s neighbors that doesn’t fully exempt military benefits from state income tax, should they collect one.
Passersby who drive around Nebraska’s largest military installation, Offutt Air Force Base in Bellevue, would be greeted by a variety of far-flung license plates – with Texas, Florida and Alaska being among the most frequently spotted.
The common thread among them is a lack of a state income tax. Active-duty personnel who have been stationed in at least one of those states frequently claim residency there during their service.
The same often holds true in retirement. Offutt is within sight of Iowa, which fully exempts military retirement benefits from its state income tax. If Nebraska were to shield 50 percent of those benefits from state taxation, it would be more competitive to keep veterans – strong candidates in the civilian workforce – and gain from property, sales and other income taxes paid by retirees who settle here.
Our only potential concern is the timing.
Ricketts estimated the program will reduce state revenue by $15 million annually. At a time when the Nebraska Legislature faces an anticipated $95 million shortfall and the requirement to set aside money for voter-approved Medicaid expansion, his proposal – which will be carried by Gordon Sen. Tom Brewer, himself a decorated veteran – could face opposition.
The newly convened legislative session has to weigh how to best fund many worthwhile programs and proposals. Providing income tax relief to military retirees and bringing Nebraska more in line with surrounding states certainly ranks high on that list.