Tax code adjustments recommended

Members of the Revenue Committee heard testimony Feb. 5 on two bills that would change the state’s current tax system.

Currently, the income limitation to receive a 100 percent homestead exemption is a maximum household income of $22,500 for a married claimant. Each increase in income, by $1,200 increments, results in a reduction in the exemption by 15 percent. Eligibility ends at a household income of $28,501 for a married claimant.

The maximum household income for a single claimant to receive a 100 percent homestead exemption is $19,200. Eligibility for a single claimant ends after reaching a household income of $24,201.

LB986, introduced by the Revenue Committee, would increase from $1,200 to $2,000 the increment by which the exemption is reduced by 10 percent, rather than 15 percent. The bill also would increase the income level at which eligibility would end to $40,501 for a married claimant and $37,201 for a single claimant.

Committee chairperson Galen Hadley said the proposed adjustment is a primary recommendation of the Tax Modernization Committee.

“Anytime you make significant changes to a tax system, it will cost significant dollars,” he said. “However, we don’t want to have to push the elderly out of their homes because they cannot pay their property taxes.”

Mark Intermill, representing the American Association of Retired Persons (AARP), supported the bill, saying Nebraska currently has a slightly regressive tax system.

“Tax revenue sources should distribute the tax burden according to people’s ability to pay,” he said. “[Under this bill] there will be more people who qualify for at least partial exemptions.”

Douglas County Assessor Roger Morrissey also testified in support of the bill. He said last year had the lowest number of approved homestead exemption applicants in the last six years.

“This program makes a difference for a lot of seniors and enables them to stay in their homes,” Morrissey said. “This will definitely help.”

A hearing also was held on LB987, introduced by the committee, which would index state income tax brackets for inflation. The indexing would be done annually by the state tax commissioner.

Hadley said the bill represents a true tax cut for Nebraskans.

“The state, not the citizens, has benefited greatly in paying bills by not allowing bracket [indexing],” he said. “If we don’t index, the citizens of Nebraska will lose $35 million in purchasing power.”

The bill also would reduce the amount of Social Security benefits that are included in the federal adjusted gross income (AGI) for state income tax purposes. The adjustment would apply to taxpayers with an AGI of $58,000 or less for married persons filing jointly and $43,000 or less for all other returns.

James Cavanaugh, representing the National Organization of Social Security Claimants’ Representatives, testified in support of the bill. He said it is the right time to finally address the issue.

“These are not people who will save income from month to month. They spend pretty much their entire income each month,” he said. “If we allow them some tax relief, they will spend that saved amount each month.”

OpenSky Policy Institute Executive Director Renee Fry offered neutral testimony on LB987. She said inflation has led to a decrease in taxpayers’ purchasing power.

“While families’ income has grown with inflation, their purchasing power has decreased,” Fry testified. “This would ensure families pay income taxes proportional with inflation. However, we remain skeptical that now is the time to institute major tax relief.”

No one testified in opposition to the bills and the committee took no immediate action on them.