Sen. Pete Ricketts proposes federal tax cut on Social Security income
LINCOLN — U.S. Sen. Pete Ricketts was Nebraska’s governor in 2022, when then-State Sen. Brett Lindstrom proposed cutting the state tax on Social Security income in incremental steps. Now Ricketts wants to take Nebraska’s idea national.
Ricketts said he is proposing legislation Thursday to phase in a reduction on federal income taxes on Social Security payments.
Ricketts proposes ending the federal tax on 10% of the Social Security income that recipients pay taxes on in tax year 2024. The measure would increase the tax cut to 20% in tax year 2025.
Today, up to 85% of a person’s Social Security income is taxable, depending on outside income and other factors. Ricketts said he wants Congress to work toward cutting the taxable income to zero.
“That’s the way it originally started out, that Social Security benefits were not taxed,” Ricketts said.
Smaller steps and spending cuts
He said he is proposing incremental steps because the cuts will be sustainable only if he can encourage the Senate to wrestle discretionary spending back to pre-pandemic level
Part of the need for spending offsets is the proposal’s cost. Ricketts’ legislation would use federal money to make the Social Security trust fund whole for any specific revenue lost to the tax cut.
Ricketts declined to share estimates of what his proposal would cost annually, saying his office was awaiting an independent fiscal note.
Asked what he would tell younger workers who would have to pay for the difference, he said working-age Americans are already paying for Social Security out of their paychecks through the payroll tax.
Taxing retirees for benefits they’ve already earned and had removed from their pay is “double taxation,” he said.
Ricketts said he is looking for a Democratic co-sponsor willing to work with him on the idea and a broader, must-pass piece of legislation they can amend it into.
In Nebraska, the Social Security tax cut received broad bipartisan support. Ricketts said the same should be true even in Congress, with a Senate controlled by Democrats and a House run by the GOP.
He said federal lawmakers have a chance to help people on fixed incomes address what he called stubborn inflation, rising costs, high gas and energy prices and rising interest rates.
He said the incremental cuts have made a difference for seniors in Nebraska, and he expects the full cut to help more.
“I think that a lot of people would want to look at this,” he said. “The general idea of letting seniors keep their own money is one that is going to see enough support.”