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REGISTER HAS FRONT PAGER ON IOWA PENSION EXEMPTION

February 06, 2006

The Des Moines Register leads today with a skeptical piece on the pension exemption passed last week by the Iowa house. The piece features interviews with seniors, most of them opposed to or ambivalent about the proposal to exempt all pension and Social Security income from Iowa tax.

The proposal passed the Iowa House 81-18, with all Republicans and a majority of Democrats voting in favor.

The article says that pension taxes aren't always decisive for retirees leaving the state. It presents a nice map showing nationwide retiree migration patterns. The map caption summarizes the point of the article:

There are few retirees leaving Iowa near the state's border, which experts say counters the argument that "border birds" are settling in South Dakota and Illinois to avoid Iowa taxes. The elderly population tends to migrate toward the suburban fringes of metropolitan regions or to areas with warm temperatures, lakes or mountains.

I would say that retiree taxes are a factor, but usually not a decisive one. A lot more Iowans move to Arizona, which has income taxes, than to tax-free South Dakota. When retirees do leave for tax reasons, it's usually because they have large amounts of investment income; the House proposal won't affect them.

The main reason to oppose this tax, I feel, is that it further narrows the tax base. Somebody has to pay the taxes, and if the retirees pay less, everyone else pays more. It narrows the base and requires higher rates on those who remain. It also will make sensible comprehensive state tax reform that much harder to achieve because the old folks won't want to give up their tax break.

The best quote from the article:

"Which problem should Iowa be focusing on: losing young people or losing the elderly? . . . I think possibly we have our full quota of older Iowans," says Mary Jane Odell, 82, of Des Moines and a registered Republican.

Worst argument for the pension break:

Taxing retirement benefits is unfair because it's a double taxation.

No, taxing pensions is not double taxation. By definition, pension income was excluded from income during your working life. Any tax on the pensions at retirement is on amounts long tax-deferred.

Least coherent argument for the tax break (from Rep. Jamie Van Fossen):

"Not only is it the right thing to do, it's the fair thing to do," he said. "This helps cops and firefighters and health care workers and people who have invested in their 401(k)s. To me it adds up to good policy."

Huh? "Cops and firefighers and health care workers?" Why not "the children," and kittens too? It sure doesn't help the cops and firefighters and health care workers who are still working; it means they have to pay higher taxes. It sure doesn't help the people who are still investing in their 401(k) plans; the higher state taxes they have to pay will squeeze their ability to save more in the retirement plans. The only good policy about it is that it panders to a segment of the population that votes in large numbers, at the expense of everyone else.

Prior coverage:

ROLL CALL ON THE PENSION EXEMPTION

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

THEY'RE BAA-ACK

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