a half dozen states are considering giving new tax
breaks to seniors over 65, although they already enjoy
favorable treatment by the federal government and by
most states on their income and property taxes.
some of the states looking to cut taxes, itís an
effort to stop older folks from decamping to more
tax-friendly places when they retire. For others, itís
a way for lawmakers to curry favor with one of the most
politically plugged-in demographic groups, which also is
are worth more, dollar-wise, than young people,"
said U.S. Census Bureau spokesman Robert Bernstein.
the states looking at proposals this year are Iowa,
Maine, Minnesota, Maryland and Rhode Island. Most would
reduce or do away with state taxes on retirement income.
Iowa, for instance, state Sen. Roby Smithís bill would
phase out state taxation on retirement income over five
years starting in fiscal 2017. Iowa already excludes the
first $6,000 of retirement income from state income
taxes ($12,000 for married couples) and all income for
recipients of military retirement benefits. Smithís
proposal would cost the state about $200 million a year.
a Republican, said the idea came to him when campaigning
door-to-door last fall. "The No. 1 thing I heard at
the doors Ö from retirees or soon-to-be retirees was
Ďdonít tax my pension,í" he said. Like many
other states, Iowa does not tax Social Security income.
Not taxing pensions or other retirement income is
"the next logical thing," he said.
represents Davenport, just across the border from
Illinois, which does not tax pensions. "I have
people who move across the river to avoid the pension
tax," he said.
to a "tax-friendly state" can be important to
many seniors, who arenít wealthy and live on fixed
incomes, or who are seeking to get the most from their
retirement savings and pensions. Financial publications
like Kiplingerí Retirement Report compares the taxes
elderly residents face in every state. According to
Kiplinger, Iowa is a "not tax friendly" state
and Illinois has a "mixed" tax picture for
is not a tax-friendly state, according to Kiplinger, and
Republican Gov. Paul LePage wants to change that. He has
proposed eliminating the stateís income tax entirely.
But if he canít do that, heíd like to exempt
military pensions and up to $30,000 of other retirement
income from income taxes. He has said cutting taxes on
military pensions will help convince retired military
personnel to stay or move to Maine.
elicited laughter at a recent public forum when he
pointed out that the tax was imposed by referendum
during the tenure of former Democratic Gov. Kenneth
Curtis, who now lives in Florida.
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Minnesota, a $2 billion tax cut proposed by House
Republicans includes a tax exemption for Social Security
income and military pensions.
has a $1.8 billion budget surplus, but Republicans are
at odds with Democratic Gov. Mark Dayton over what to do
with the money. Among other things, Dayton has proposed
a universal pre-kindergarten plan.
governor does not support the House GOP proposal to
exempt all Social Security income from state taxes, as
it most greatly benefits the wealthiest
recipients," said Dayton spokesman Matt Swenson.
"However, he would consider raising the current
income brackets to lower Social Security taxes on
currently exempts part of the Social Security income
from taxes, on the same sliding scale as the federal
Maryland, Republican Gov. Larry Hogan proposed
eliminating over four years income taxes on military and
public safety retirement benefits. The Democratic-led
legislature trimmed the plan, exempting the first
$10,000 of their retirement benefits from taxation.
Hoganís press secretary Shareese Churchill, said Hogan
plans to sign the bill later this week.
Rhode Island, residents currently pay state taxes on
Social Security benefits, as well as most other pensions
and retirement income. Although some lawmakers want to
make most of the retirement income-tax free, Democratic
Gov. Gina Raimondo proposed eliminating the tax on only
lower- and middle-income Social Security recipients, a
proposal that seems to have more support.
Sasse, a former Rhode Island director of revenue and
founding director of the Hassenfeld Institute for Public
Leadership at Bryant University, praised the governor.
a fairer and more efficient way to do it," he said.
"Some proposals were for exempting Social Security
from tax regardless of income. They make the case that
it would keep money in the state and improve the
economy. There is no empirical evidence to prove
citizens already receive many tax breaks. Federal law
gives them a higher standard deduction on their income
taxes and a full or partial income-tax exemption for
Social Security payments, depending on levels of income.
states ó Alaska, Nevada, South Dakota, Texas,
Washington, Wyoming, Florida, New Hampshire and
Tennessee ó have no income tax at all. Three states
with a broad-based income tax (Illinois, Mississippi,
and Pennsylvania) exempt all retirement income ó
including pensions, Social Security and annuities ó
from taxes. Thirty-six states with an income tax allow
some exemptions for pension benefits. Thirty-two states
with an income tax exempt all Social Security benefits.
the trend, Meg Wiehe, state tax policy director for the
Institute on Taxation and Economic Policy, which
surveyed senior tax breaks, said all of the efforts to
have "blanket state tax preferences for elderly
taxpayers is Ö a very ill-advised policy."
also pointed out that states which shield retirement
income Ė Social Security and pensions, for example Ė
while still taxing wages, are favoring the rich over the
poor. "You are ignoring low-income seniors who have
to continue to work past traditional retirement age
because they donít have the savings that others
have," she said.
tax policy analysts question the idea of giving seniors
tax breaks at all.
think tax breaks for old people are silly from a tax
policy perspective," said David Brunori, deputy
publisher of Tax Analysts, a trade publication.
"Under no theory of taxation should a person who
turns 62 (or whatever age we pick) magically be exempt
letís face it," he said, "states offer tax
relief to old folks because those folks vote more than