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Neb. lawmakers consider axing Social Security tax

Alissa Skelton, Associated Press

LINCOLN, Neb. (AP) -- Several Nebraska lawmakers shared proposals Wednesday to get rid of taxes on Social Security benefits aimed at making Nebraska a more appealing place to retire.

The Legislature's Revenue Committee heard from three lawmakers Wednesday and is scheduled to hear several more proposals Thursday related to exempting retirement benefits from taxation.

Lawmakers are looking into this issue after advocates and reports painted Nebraska's tax law as unfriendly to baby boomers. In 2012, Kiplinger magazine rated Nebraska the sixth worst tax friendly states for retirees. Nebraska is among six states that tax Social Security benefits at the same rate as the federal government.

Omaha attorney James Cavanaugh, a supporter of exempting Social Security taxes, argues that seniors have paid into the fund for their whole working lives and deserve not to have the income taxed. Advocates also say seniors are leaving Nebraska to go to states with more favorable tax climates.

Nebraska law currently allows people making less than $25,000 per year and couples earning less than $32,000 to be exempt from all Social Security tax. Omaha Sen. Jeremy Nordquist said those numbers haven't changed since 1984 and need to rise with inflation. He said about 39 percent of Social Security recipients' benefits were taxed in 2005.

Nordquist introduced a bill that would exempt Social Security income taxation for individuals with incomes of $60,000 per year or less and for couples earning $80,000 or less. This proposal would cost the state more than $31 million per year. AARP, the Nebraska State Education Association Retired and the Nebraska Alliance for Retired Americans support Nordquist's bill.

Fremont Sen. Charlie Janssen proposed a similar bill — almost identical to what Nordquist proposed last session — that would exempt all Social Security income from taxation. Janssen's proposal would cost the state more than $81 million per year.

Earlier this month, Gov. Dave Heineman's unveiled his proposal to scrap individual and corporate income taxes, which also would eliminate taxation of Social Security and retirement income. Janssen said he wouldn't have introduced a bill had he known that several other senators were working on the same legislation.

Columbus Sen. Paul Schumacher said he is concerned about the cost of the bills introduced by Nordquist and Janssen. Lawmakers would have to consider reducing funding in other areas, such as education, to give seniors a break on Social Security income, he said.

Schumacher asked Nordquist how he could justify shifting the tax burden onto the younger generation. Nordquist said seniors would spend the money in Nebraska, which would help the local economy.

"I think we should be putting money back in the pockets of seniors who need the money," Nordquist said.

Sen. Sue Crawford of Bellevue offered another bill that would cost the state more than $6 million. Crawford's bill would exempt tax on several types of retirement income, including Social Security, for those still working. Exemptions would be allowed for couples earning less than $60,000 per year and individuals earning less than $30,000. She said the bill would target retirees of various professions most likely to be engaged in the economy while "ensuring we are able to keep our commitments to local schools and Nebraska families."