Do America’s retirees need more tax breaks? Some politicians at the state level clearly think so.
According to a report from the Citizens for Tax Justice, a non-profit that lobbies for tax policy on behalf of middle and lower-income Americans, plans are in the works in five states that would dramatically lower retirees’ tax exposure.
Americans age 65 and older suffer a lower rate of poverty than any other age demographic in the country, according to 2013 census data published last fall. Whether the same will be true 10 years from now, as more baby boomers retire with questionable levels of savings, remains to be seen.
Advocates of tax breaks for senior citizens say those breaks have helped lower the poverty rate for Americans over age 65 to 9.5 percent (it was 27 percent in 1959).
At the federal level, taxpayers over 65 claim a standard deduction that is $1,200 more than younger earners, and up to 100 percent of Social Security income can be exempted, depending on total income, according to Citizens for Tax Justice.
At the state level, tax policy is often used as leverage in the attempt to attract retirees — and win votes. In Georgia, for example, the first $65,000 of income is exempted for retirees over age 65. Mississippi exempts income from retirement plans, and Arizona doesn’t tax Social Security benefits.
Still, some think not enough is being done to protect retirees’ income. Here is a look at what those five states are hoping to accomplish.
What if income from all pensions, annuities and 401(k)s were not taxed? That’s what one bill, recently introduced in the Iowa Senate, is proposing. Sound like a pipedream? The bill already has 23 co-sponsors, and similar legislation has since been introduced in the state’s House.
In Maine, Republican Gov. Paul LePage is spearheading comprehensive tax reform, which would use increased sales taxes to offset cuts in the corporate and personal income tax rates and allow for the elimination of the estate tax. Also, retirees over 65 would see a current pension income exemption of $10,000 raised to $35,000.
Republican Gov. Larry Hogan has talked about removing all pension income from the state’s tax tables, but the time being, he is focusing on military, police and firefighter pensions.
As is, the first $29,000 of pension income for everyone over age 65 is exempted; for military vets, the exemption is $34,000. The average military pension is $28,000, according to the Baltimore Sun.
The state is currently awash in a $1.9 billion budget surplus. That has packs of special interests looking for a tax break, and legislators considering the wisdom of cutting or eliminating taxes on Social Security. Others worry about the long-term consequences, cautioning the cuts would mean up to $194 million in lost revenue by 2019, as pre-retirees move out of the workforce.
One bill out of Rhode Island’s House would exempt all local, state and federal pensions, as well as military pensions and all Social Security benefits. Critics say it would cost $60 million annually and largely benefit wealthier retirees. Democratic Gov. Gina Raimondo has proposed exempting Social Security of taxpayers making less the $60,000 a year.