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GIVE US YOUR OLD, YOUR CREAKY, YOUR BINGO PLAYERS...

January 30, 2006

David Brunori, a tax professor who moonlights for Tax Analysts as a commentator on state tax issues, is unimpressed by efforts to exempt retirement income from Iowa taxes. Unfortunately the article is behind the Tax Analysts subscriber firewall, but here are some tidbits:

There is a movement afoot to eliminate the Iowa income tax on Social Security and pension income. The plan is being pushed by Republican lawmakers and is driven in part by the belief that retirees leave the state to avoid taxes. It is also driven in part by the lawmakers' desire to appease senior citizens, who tend to vote more than the rest of us. The plan would cost about $250 million a year -- approximately the same amount as the current deficit.

Iowa doesn't have enough old people. We're only the fourth oldest state in the country. We won't rest until we shuffle past Florida. Though we might have to stop for a couple of catnaps, and to take some meds.

There is no reason to broadly exempt all pension and Social Security income. Such an exemption runs counter to the notion that we should have a broad base and low rates. (Everybody else, specifically young people, will pay more because of this.) Then there is the question of granting exemptions to rich old people. Many wealthy elderly people collect pensions and Social Security. Many are millionaires. Why offer an exemption to the rich? But maybe -- and this is my cynical side talking -- it's because the rich elderly vote more than the poor elderly.

Yes, subsidizing the elderly wealthy on the backs of the rest of us is just the ticket to keeping our youth from fleeing the state...

I spoke with a couple of legislators who maintain that retirees are fleeing the state to avoid high income taxes. No one wants grandma to move to Florida because she can't pay her taxes. But this justification is not grounded in reality. Prof. Peter Fisher of the University of Iowa, who, by the way, is a very smart guy, recently conducted a study that showed that only 0.07 percent of Iowans age 65 and older left the state each year between 1995 and 2000. Two-thirds of those who left headed for states with the same or higher income taxes on pensions and Social Security. And more senior citizens moved from Illinois -- which does not tax pensions -- to Iowa during that time!

But think of how many more old people we could get with lower retirement taxes. Besides, somebody has to be here to play all those slot machines video lottery terminals.

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