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Whether you indentified with Dorothy, Blanche, Rose or Sophia, The Golden Girls was a shining moment in television history. The show was groundbreaking in its portrayal of senior citizens as fully complex individuals, and has inspired a devoted following decades after the end of its run.
Life imitates art, and senior citizens are a favorite target of legislator largesse. Almost every state that levies an income tax now allows some form of income tax exemption or credit for citizens over 65 that is unavailable to non-elderly taxpayers. But many states have enacted poorly-targeted, unnecessarily expensive elderly tax breaks that make state tax systems less sustainable and less fair.
Poorly targeted tax breaks for the elderly are a costly commitment for many states—and long-term demographic changes threaten to make these tax breaks unaffordable since older adults are the fastest growing age demographic in the country. Moreover, while poverty has often been associated with advanced age, a 2014 US Census report found that Americans over 65 are less likely to be poor than people in their prime working years, further exacerbating the mismatch between the tax breaks offered and needs within the population.
Despite these concerns, lawmakers in many states have proposed further tax breaks for the elderly (click here to read an ITEP brief on this topic). Here are five states where senior tax proposals are on the table:
Iowa: State Sen. Roby Smith recently filed legislation (SF 277) that would remove pensions, annuities, and retirement income from the personal income tax base. So far, the legislation has 23 cosponsors and a similar bill is being sponsored in the House. Note that Iowa already allows a $6,000 exclusion ($12,000 for married couples) for retirement income.
Maine: There is a lot of coverage of Gov. Paul LePage’s sweeping tax shift package that would hike sales taxes to help pay for significant personal and corporate income tax cuts and the elimination of the estate tax. One part of the plan that has received less attention is an increase in the state’s current pension exclusion from $10,000 to $35,000 per each taxpayer over 65. An ITEP analysis of this increased pension tax break found that more than 60 percent of the benefit would flow to the wealthiest 20 percent of Maine residents.
Maryland: Gov. Larry Hogan would like to eventually exempt all pension income from state income taxes, but due to a tight budget situation he is starting with a more limited proposal targeted toward politically popular beneficiaries: military veterans, police, and firefighters. It’s important to note that Maryland already has a generous exemption on the books for pensions. Under current Maryland law, the first $29,000 in pension income collected by disabled taxpayers and those over age 65 is exempt from tax, and for military veterans that amount is even higher, at $34,000. Of course, these breaks come on top of the normal personal exemption ($3,200) and standard deduction ($2,000) that all Marylanders can claim. As a result, Hogan’s plan would mostly benefit taxpayers with above-average pensions (the average military pension is $28,000 according to official statistics) and people with the financial means to retire early. Fortunately, State Senate President Mike Miller thinks that the plan is unlikely to gain passage.
Minnesota: Lawmakers are debating a variety of bills aimed at eliminating or reducing taxes on Social Security benefits. As this article notes, the cost of cutting the tax on Social Security benefits will grow over time because the number of Social Security beneficiaries is growing.
Rhode Island: Lawmakers want to reduce taxes for Ocean State retirees this session, but the proposals that have emerged from the state’s House chamber and the governor’s office differ greatly in their cost and scope. A bill introduced in the House would exempt all state, local and federal retirement income, including Social Security benefits and military pensions, from the state’s personal income tax. An initial ITEP analysis of the bill found that the lion’s share of the benefits would go to well-off elderly taxpayers. Since some Social Security income is already exempted from Rhode Island taxes, low-income seniors already owe no personal income taxes on those benefits and often have no other retirement income. The House plan could cost more than $60 million if enacted. Gov. Raimondo’s budget includes a much smaller and more targeted retirement income tax break which would fully exempt taxpayers with incomes less than $60,000 from paying taxes on Social Security. Not only would her plan cost significantly less (around $4 million), it would ensure that 100 percent of the benefits from the tax break flow to moderate-income older adults who depend primarily on Social Security for their income.