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Top New Jersey Lawmaker Calls for Tax on Millionaires to Help Fund Pensions

A New Jersey court ruled last month that the state acted illegally in cutting its pension contributions over the last two years.

As a result, the state will need to pay its full contribution in 2015 – which means New Jersey will need to come up with about $1.6 billion that hasn’t yet been budgeted for.

In lawmakers’ search for new streams of revenue, one idea has come to the forefront.

New Jersey Senate President Stephen Sweeney is proposing a tax on millionaires.

The policy would boost the income tax on earnings over $1 million and could raise $600 million in revenue in its first year, but Gov. Chris Christie has historically been opposed to the measure.

Minnesota Legislation Would Exempt Military Pensions From Taxes

Minnesota is one of six states in the country that fully taxes military benefits.

But that could change soon, as two pieces of legislation in the state House seek to exempt some or all of military pensions from taxation.

The first, introduced by Rep. Bob Dettmer, would exempt from taxation the first $30,000 of military retirement benefits earned, regardless of the retiree’s rank.

Rep. Josh Heintzeman has introduced a similar bill. But Heintzeman’s version would exempt all military retirement income from taxation.

$700 Million in New York Pension Payments Go to Florida Retirees

If you want a sense of how many New Yorkers move to Florida in their retirement years, look no further than this number: $708 million.

That’s how much New York’s pension system paid out to Florida residents in 2014; the number represented 7 percent of the system’s total benefit payout.

Michigan Gov. Snyder Defends Pension Tax

Michigan Gov. Rick Snyder’s tax on pension benefits, levied in 2011, has become a legitimate campaign issue over the last few days. Snyder took to the radio this morning to defend the policy and cast the tax in a different light. Reported by Detroit News:

Democrats have made Snyder’s changes to the way pensions are taxed a major issue in the election campaign, calling it a tax on seniors — a characterization the governor challenged Friday during the live radio show.

“That’s a misstatement when it says seniors,” Snyder told radio show host Rick Pluta. “It was really about essentially removing the exclusion on pension income.”

In 2011, Snyder first proposed ending all income tax exemptions on pension income. Previously, only retirees with large pensions from private employers were subject to the income tax.

[…]

The governor noted a new exemption of up to $40,000 was carved into the tax code for all forms of income for senior citizens.

“Now it’s fair between people who had retirement income and people who had working income,” Snyder said.

Under the changes Snyder signed into law, all pension income is subject to the 4.25 percent income tax for residents born after 1952.

“It’s still one of the top 10 most generous schemes in the country,” Snyder said of Michigan’s tax on retirement income.

Snyder reiterated his longstanding argument that making more pension income subject to the income tax was a matter of fairness to other workers.

“If you say retirement income isn’t taxed, you’re shifting your taxes to your kids to say ‘we want you to carry us,’ and that’s not a fair answer,” Snyder said.

The pension tax is especially controversial because Snyder simultaneously cut taxes for businesses by $1.8 billion.

Snyder countered that, although he cut taxes for businesses, he also “wiped out” tax credits for those businesses.

Pension Tax Could Loom Large in Race for Michigan Governorship

Pensions aren’t the biggest issue in Michigan’s race for governor. But with incumbent Rick Snyder in a dead heat with challenger Mark Schauer, Snyder’s 2011 pension tax increase could prove to be a major factor in the way the race eventually plays out.

From Money News:

Polls have shown Snyder, 56, in a dead heat with Democratic challenger Mark Schauer, 52, a former state legislator and congressman who’s hammering Snyder for hurting pensioners while cutting business taxes by $1.4 billion.

“I’m very sorry I voted for Mr. Snyder,” said Rosalind Weber, 67, a retired state worker from Ionia who calls herself an independent. “I won’t vote for him again. I didn’t like what he did with the taxes.”

Snyder bucked a decades-old trend among states of reducing taxes on retirees. While other issues are stirring the race, Michigan’s 7.7 percent July unemployment rate remained above a 6.2 percent U.S. average, the pension tax is driving a Democratic drumbeat for change in Lansing, where Republicans control all three branches of government.

Until Snyder’s changes took effect, Michigan had exempted most pension payments from the income tax, now at 4.25 percent. He created a three-tier system for retirees born before 1946, after 1952 and those in between. Members of the youngest group were hit hardest; instead of being allowed to exempt $47,309 in retirement income, they’re now taxed fully until age 67. Then, they get a $20,000 exemption.

Michigan’s House Fiscal Agency estimates that the tax cost retirees around $350 million in 2013 alone. And, as everyone knows, seniors vote. We’ll see how the race plays out, but the pension tax increase is sure to be an issue moving forward.

Could a “Retirement Tax” Help Illinois Climb Out of It’s Fiscal Hole?

Illinois is in a fiscal bind, and Rich Miller—founder of CapitolFax and tab-keeper on all things Illinois politics—explores in his recent column a policy that could raise $2 billion dollars.

The idea: levying a tax on retirement income.

From Miller:

Illinois is facing a $4 billion hole in its 2015 budget when the 2011 income tax increase automatically starts to roll back on Jan. 1. That’s a huge headache for whoever wins the Nov. 4 election, Gov. Pat Quinn or Republican nominee Bruce Rauner.

Illinois is leaving $2 billion on the table by not taxing retirement income, studies have shown. That missed revenue is escalating every year. Total retirement income in Illinois is growing by 6.5 percent a year, compared with just 1.9 percent annual growth for personal income that is taxed, according to a study by the Civic Federation.

Illinois is one of just three states that exempt pension income from taxation, according to the Chicago Metropolitan Agency for Planning.

Former Illinois Gov. Jim Thompson, who passed the law outlawing retirement income taxation, had this to say on the issue:

“There’s a whole lot of people in this state who are trying to exist on just Social Security or a low governmental pension,” he says. Senior citizens already pay federal income taxes, “and once they get through doing that there’s not enough left, especially when the state income tax has jumped up to the place it is.”

To that, Miller proposes an idea that might be more palatable to opponents of the tax:

The Civic Federation found that taxpayers earning less than that accounted for only about a quarter of total retirement income in the state. So taxing retirement income above $50,000 would still bring in $1.5 billion a year, which is nothing to sneeze at.

Not to mention that barely a third of Illinois seniors even know that their income isn’t being taxed in the first place, according to a Capitol Fax/We Ask America survey of 816 Illinoisans age 65 and over that I commissioned.

Both Gov. Quinn and Bruce Rauner have publicly stated they won’t support a tax on retirement income.

A tax on retirement income is overwhelmingly unpopular among seniors, as Rich Miller found out when conducting an informal survey.

When Miller asked seniors whether they would support a policy of taxing retirement income, 88 percent responded “No”.

Photo by Chris Eaves via Flickr CC License