Military Retirement Tax Cut Promoted, Wider Low-Income Heating Help Resisted

Jan. 29, 2021, 5:10 p.m. ·

Sen. Tom Brewer testifies Friday, with Gov. Pete Ricketts in background (Photo by Fred Knapp, NET News)

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Exempting military retirement pay from income taxes drew support at a public hearing Friday. Meanwhile, a proposal to extend low income heating assistance to more people ran into objections from the Department of Health and Human Services.

Last year, the Legislature exempted 50 percent of military retirement pay from state income taxes. This year’s proposal would exempt the remaining 50 percent. Sen. Tom Brewer, who introduced the bill for Gov. Pete Ricketts, said neighboring states already exempt military retirement pay, and are luring highly-skilled retirees away from Nebraska.

“Estimates say over 400 people retire each year from Offutt Air Force Base. The majority of those people settle in the local area, begin a second career in the civilian economy. Often they find work in the federal government as employees with the Department of Defense or with actual civilian contractors. Unfortunately, most of them move to Iowa,” Brewer said.

Ricketts said in Iowa and South Dakota, the number of military retirees is growing two to three times faster than the civilian population, while in Nebraska, it’s growing half as fast. And he tackled a question that’s sometimes asked about the proposed tax exemption:

“Why military retirees? Some people ask that question. Why not, say, police officers? Well, I’ll tell you. It’s a different population. Our military families move ten times more often than civilian families do. They’re mobile. They’re willing to move to where they are going to be welcome,” Ricketts said.

Sen. Mike Flood asked Ricketts a variation of the same question.

“Do you worry at all about the slippery slope of identifying one subset of Nebraskans to provide a 100 percent exemption from income tax? And what would you say to a future Legislature about a proposal that comes along with another very worthy group of Nebraskans that we want to attract. Is that a better way to do it or should we be looking at overall comprehensive reform?” Flood asked.

“So senator, first of all as you know, I’m always in favor of tax relief,” Ricketts said, laughing. “And… I think this population is different for a reason. And I think the reasons are very compelling and the data shows that we’re losing this population. There may be another population that has equally different criteria that may make a compelling reason for doing that. But I can’t think of one right off hand as compelling as right now our military veterans,” he added.

Richard Evans, a retired Air Force Major General who now works for the University of Nebraska, said there are about 130,000 veterans in Nebraska. But he said only 11 percent, or about 14,000, get retirement pay, which usually comes after 20 years in the military.

The proposed exemption is estimated to cost the state about $13 million a year in tax revenue. Supporters suggested that would be offset by taxes and other economic benefits from retirees remaining to live and work in Nebraska.

Greg Holloway supported the proposal on behalf of the Nebraska Veterans Council, a coalition of veterans groups:

In: We represent, off the top of my head, probably over 50,000 veterans in the state of Nebraska, and they’re all for it. (It) doesn’t benefit me. I was drafted and I only spent my two years in the military, so I didn’t retire. But it benefits the state of Nebraska very, very much,” Holloway said.

No one testified against the proposal. But the Open Sky Policy Institute sent a letter of opposition. The letter called the proposal well-intentioned, but said exemptions were hurting the state’s general fund and this one could benefit high-income individuals. The letter also said academic research does not show a connection between tax rates and people’s decisions on where to live.

Also Friday, the Nebraska Department of Health and Human Services opposed a proposal to make more people eligible for low-income heating assistance. Sen. Tom Brandt wants to raise the income limits to qualify. Right now, a family of 3 qualifies up to an annual income of about 28,000. Brandt wants to raise that to about $33,000. He said the federally-funded program provides important help for expenses like fuel costs and emergency furnace repairs.

“It is essential in keeping our state’s most vulnerable population safe from extreme weather conditions,” Brandt said.

Brandt said he felt “ambushed” by an estimate from the Department of Health and Human Services that it would cost more than $800,000 a year to administer changes in the program.

Britton Gabel, who said he used to administer the program for DHHS before leaving in 2019, also disputed that estimate.

“My experience running the program tells me they can administer this program without any additional costs or fees,” Gabel said.

DHHS said the program served about 38,000 households last year, and raising the eligibility ceiling would add about 8,000 more, requiring additional staff. Sen. Machaela Cavanaugh asked DHHS’s Stephanie Beasley about that.

“You would have to hire 21 social workers?” Cavanaugh asked.

“That would be the additional cost, yes,” Beasley replied.

Beasley also said since the federal government sends the state a fixed amount of money for the program, making more people eligible would mean less money for those already getting help.

Brandt said he still supports the proposal, and left a question for senators listening to the hearing.

“Are we here to make DHHS’s life easier, or are we here to help the people of Nebraska?” Brandt asked.

The committee took no immediate action on the proposal.