Adjustments to state income, social security taxes advanced

Senators gave first-round approval March 11 to a bill that would index state income tax brackets for inflation.

Under LB987, introduced by the Revenue Committee, state income tax brackets would be indexed annually by the state tax commissioner.

Kearney Sen. Galen Hadley said the bill is a response to what taxpayers told members of the Legislature’s Tax Modernization Committee during interim hearings held across the state.

“[Not indexing brackets] is a way that, over the years, the state government has had additional money to spend, but it’s come out of taxpayers’ pockets,” he said. “[This bill] is a significant tax cut to every person who pays income taxes in the state of Nebraska.”

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.

The estimated reduction in state General Fund revenue would be as follows:
• $8.3 million in fiscal year 2014-15;
• $24.9 million in FY2015-16;
• $37.3 million in FY2016-17; and
• $51.6 million FY2017-18.

Omaha Sen. Jeremy Nordquist supported the bill, saying the revenue lost at the state level would be reinvested at the local level.

“This approach is a great start for us and a responsible approach forward,” he said. “These dollars for these families … go right back into our local economy. We have really addressed the concerns that Nebraskans brought to us during the Tax Modernization Committee [hearings].”

Norfolk Sen. Jim Scheer also spoke in support of the bill. He said it is a tax cut that affects all Nebraskans.

“This is helping everyone because when the tax brackets creep up with inflation … pretty soon most of the population is at the highest level that we have,” he said. “If we can start adjusting that and make the difference in those brackets, it becomes a fairer tax.”

Senators advanced the bill on a 36-1 vote.