Paul L. Caron

Thursday, March 3, 2011

Forbes: State Tax Breaks for Seniors on the Chopping Block

Forbes, State Tax Breaks for Seniors on the Chopping Block, by Janet Novack:

While the national media has been transfixed by Wisconsin Governor Scott Walker’s decision to take on the unions, relatively little attention has been paid to the exploits of another new Midwestern Republican governor who has taken on another sacred cow: tax breaks for senior citizens.

Michigan’s Rick Snyder has proposed slashing business taxes and making up for the revenue loss with nearly $1.9 billion in higher taxes on individuals—with $900 million a year  of that coming from eliminating the current generous exemption seniors get for pensions and IRA distributions. Meanwhile, in Georgia, the Republican controlled legislature is considering doing away with a growing income tax exclusion for retirees that was one of former Republican Governor Sonny Perdue’s signatures tax changes. And Hawaii Governor Neil Abercrombie is pushing to  limit that state’s tax exemption for defined benefit pensions, although (being a Democrat) he would protect couples with $75,000 or less of adjusted gross income and singles grossing less than $37,500 from the new pension tax.

Tax seniors? The folks who turn out in such high numbers to vote? The folks who can also vote with their feet when they pick a retirement location? ... Most of the states exempt all or some Social Security, whereas the federal government taxes up to 85% of these payments. Three states – Illinois, Mississippi and Pennsylvania – exempt all private and public pension payouts, including withdrawals from individual retirement accounts. A  2007 study by Karen Smith Conway of the University of New Hampshire and Jonathan C. Rork of Georgia State found that retirees pay, on average, only half the state income tax that working folks with the same income pay.

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