LINCOLN -- A legislative committee Friday voted against advancing a proposal to provide tax breaks to retirees amid concerns that it was wrong to do so until a major state tax study is completed.
The proposal would have exempted Social Security and military pensions, under certain amounts, from state income taxes.
Both are long-sought ideas that have been rejected, in the past, due to concerns about how to replace the tax revenue raised by taxing pension income.
The decision came as the entire State Legislature opened debate on a bill authorizing the tax study. The study grew out of Gov. Dave Heineman's failed proposals to eliminate all state income taxes and shift the tax load onto sales taxes, by doing away with exemptions now enjoyed by businesses, farmers, hospitals and nonprofit groups.
The debate over the tax study proposal, Legislative Bill 613, could be a long one.
On Friday, State Sen. Ernie Chambers of Omaha, a master at blocking legislation, pledged to filibuster the tax study idea and all bills after it, saying he had been “lied to” about one of his tax proposals.
“I will take (over) the session, and you will have to take it back from me, bill by bill, day by day,” said Chambers. It was his boldest statement yet to disrupt debate since returning to the Legislature in January, after sitting out four years due to term limits.
The pledge turned up the heat on the already hot issue of tax reform in Nebraska.
Lawmakers, at the urging of business, ag and other groups, killed the governor's bills saying they were too bold and disruptive to enact without a comprehensive study of all tax issues.
That led to LB 613, which would create a state “tax modernization committee” to study state taxes and by Dec. 15 report ways to make them fairer, simpler, more stable and more competitive in attracting jobs and people to Nebraska.
But on Friday morning, several state lawmakers expressed concerns that the Legislature's Revenue Committee was continuing to advance “piecemeal” changes in tax policy without waiting for the results of the tax study.
The Revenue Committee has advanced a number of tax-break proposals for debate this year, including breaks for wind farms, so-called “angel” investments in startup businesses and contributions to educational savings plans.
The list grew on Thursday when the committee voted out a long-sought bill to grant farmers a sales tax exemption on repair parts for tractors, combines and other ag equipment.
The total cost of the proposed tax breaks would be $9.8 million next year, and $20.6 million the next. And they would have to compete with other bills calling for new spending, which include proposals to increase reimbursements for foster parents, spending on juvenile justice programs and contributions to underfunded state teachers' pensions.
That brought a warning from the Legislature's top budget watcher. Omaha Sen. Heath Mello of Omaha, chairman of the Appropriations Committee, told fellow lawmakers that the state has only about $16 million extra to spend this year.
“We don't have an unlimited checking account,” Mello said. “The reality is not every bill is going to pass this year if it has a price tag. The state just doesn't have the money.”
That brought a strong rebuke from the chairman of the Revenue Committee, Kearney Sen. Galen Hadley.
He said the Revenue Committee has taken a responsible approach in advancing the bills, which would require a small amount of money compared to the $220 million in spending increases advanced by the Appropriations Committee.
“You want to say the Revenue Committee is not doing its job, I strongly disagree,” Hadley said.
Nebraska's laws on contributions to college savings plan warrant updating, he said, and there is more demand to invest in start-up businesses than the state's angel investment tax credit can handle. The wind bill could lead to the construction of a $300 million wind farm near Allen, Neb.
Omaha Sen. Beau McCoy of Omaha, who picked the tax study measure as his priority bill, also defended advancing the new tax breaks.
“There's a lot of things we can do this session that we ought to do,” McCoy said.
But McCoy and Fremont Sen. Charlie Janssen fell one vote short Friday morning of advancing their proposal to give tax breaks on Social Security and military pension checks. The vote in the Revenue Committee was 4-4.
Senators voting against the proposal cited concerns about the fiscal impact, and the need for such a major shift in tax policy to be studied by the tax modernization committee.
This post was updated at 12:19 p.m., Friday.
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