Neb. lawmakers asked to exempt pensions from taxes

LINCOLN, Neb. (AP) -- Veterans' groups told lawmakers Thursday that Nebraska's tax on military retirement pay is driving people out of the state, while some lawmakers questioned whether the losses are influenced more by warmer climates and family connections elsewhere.

The Legislature's Revenue Committee heard testimony on four bills targeting retirement pay. Two measures would exempt military retirement pay from the state income tax, one would exempt military pensions and Social Security benefits, and one would eliminate taxes on all pensions.

The bills were introduced by Sens. Jim Smith and Bill Kintner of Papillion, Charlie Janssen of Fremont, and Bob Krist of Omaha. Lawmakers have pitched scores of tax-exemption proposals this year aimed at Social Security benefits, military pensions and other forms of retirement pay.

Nebraska Gov. Dave Heineman has introduced an even larger plan that would eliminate the state's income tax, while removing as much as $2.4 billion in sales tax exemptions from various businesses and organizations. A second, alternative proposal would get rid of Nebraska's corporate income tax and reduce the tax burden on retirees.

Dan Donovan, the head of a Nebraska veterans group, said the tax climate is a compelling reason for the exodus. Some lawmakers suggested that the weather and other factors played a larger role.

Chris Ferdico, a lawyer and spokesman for the Nebraska National Guard Officers Association, said retirees will start spending their nest eggs but might hesitate if they live in a state where they face higher taxes.

"How much they spend and how quickly they spend it is absolutely, directly related to how far they believe they can stretch their savings," Ferdico said. "They will only spend if they have the confidence that their savings, the current value of their dollar, is worth what they're going to need it to be worth."

Ferdico said military veterans leave the service earlier in life, often in their 40s or 50s, and find jobs elsewhere. They also are likely to settle with family members who contribute to the economy, he said.

"Is weather a factor? Sure," Federico said. "I think anyone who has been to Hawaii has said, 'Man, I could live here.' But there are lots of reasons not to, and the cost of living is one of them."

Nebraska is one of 27 states that tax military retirement income. Two of its neighbors, Kansas and Missouri, exempt military pensions from state income taxes. Wyoming and South Dakota are among seven states that have no income tax.

Nebraska has an estimated 20,000 military personnel and dependents living in the Omaha area, thanks in part to Offutt Air Force Base in Bellevue. Supporters of the tax measures argue that many veterans remain productive after retirement, but Nebraska will lose them to other states with better tax climates.

A study conducted by Military.com, a website for the armed services, has ranked Omaha as the ninth-best city for military retirees due to contract work, low unemployment and an affordable cost of living.

Sen. Burke Harr of Omaha questioned why military pensions should avoid taxes, when the pensions of firefighters and other public officials are taxed.

"Let's say I'm a firefighter for the military, and a firefighter for Omaha," Harr said. "Why should one firefighter get a pension that is taxed, and another get a pension that is not taxed?"

Ferdico said the city of Omaha is already funding pensions for firefighters, whereas the federal government pays pension costs for service members at no cost to the state. Harr said neither pension plan costs the state money, because firefighter pensions are funded by cities.

Harr said he was also leery of arguments for tax-policy changes that favored or excluded specific types of people, based on what they might contribute to the economy.

"I think we have to be a little careful when the sole basis of why we want to do something is a cost-benefit analysis," Harr said. "There are people that, no matter what, are never going to come out ahead. We as a society have a duty to look out for those individuals."