LB 64, which proposes a tax break largely benefiting wealthy retirees while also threatening funding for services seniors need, is on the Legislature’s agenda today, kicking off a two-week run in which the body will consider multiple tax and spending bills.
According to the fiscal note, the bill — which, as amended by AM 473, would phase in a complete tax exemption of Social Security Income over nine years — will cost the state more than $131 million annually once fully implemented. Retirees in the top 20% of incomes — those who make more than $114,000 — will receive two-thirds of the tax cut created by LB 64 once it’s fully implemented, analysis by the Institute on Taxation and Economic Policy (ITEP) shows.
LB 64 as amended also temporarily eliminates a current exemption that prevents retirees with incomes less than $75,000 from paying tax on their Social Security Income. Eliminating this exemption would result in higher-income seniors experiencing an immediate tax cut while low- and middle-income seniors experience an immediate tax increase. Amending the bill to restore this exemption would alleviate this scenario but it also would increase the measure’s fiscal impact even more.
In contrast, another bill proposed this session, LB 237, would only exempt Social Security for those under certain income thresholds. This measure would better target tax benefits to low- and middle-income retirees and would cost the state about $100 million less than LB 64 once fully implemented, making the measure more fiscally sustainable.
Another important factor to keep in mind as senators debate LB 64 and other tax-cut measures in the coming days is that any revenue reductions lawmakers pass could result in a commensurate reduction of federal relief dollars, as per a stipulation in the American Recovery Plan. Guidance from the U.S. treasury regarding the use of state surplus dollars to cut taxes is pending and until it comes, any tax reduction passed by Nebraska lawmakers could put the state in position to experience a double fiscal hit as it could end up forgoing revenue from the tax cut and then also have to refund an equal amount of federal dollars.
Read more about LB 64 in this policy brief.
Former senators urge care with upcoming fiscal decisions
Ahead of debate on LB 64 and other bills with significant fiscal ramifications, former Sens. Kathy Campbell, Al Davis and John Harms urged Nebraska lawmakers in this Lincoln Journal Star column to exercise prudence when deciding how to use funding available for new legislation.
“As lawmakers begin to debate the bills to determine which ones will ultimately be enacted, it will be good to keep in mind that much of the money available for new legislation was acquired thanks to an influx of federal coronavirus relief funding and other federal dollars,” wrote the former lawmakers, who are members of OpenSky’s Legislative Alumni Advisory Committee. “Given the temporary nature of this funding, it makes sense to avoid using it for ongoing expenses.”
Using the funding to bolster the cash reserve or make one-time investments in key infrastructure initiatives like expanded broadband access would be a sound use of the dollars as it would help move the state forward without tying the hands of future legislators, the former lawmakers wrote.