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OLDSTERS THRASH WHIPPERSNAPPERS

May 03, 2006

The Iowa General Assembly scored one for age and cunning yesterday. They the old folks tax exemption that was part of last week's budget agreement between Governor Vilsack and legislative leaders. The bill passed the Senate 46-4 and the House 89-6.

Youth and ability struck out in last year's session, when a bill to exempt youth from Iowa taxes died without a floor vote.

BREAKS BEGIN TO APPLY IN 2007

The old folks bill has two parts: a large exemption for all income, and an additional exemption for social security income.

Starting in 2007, the blanket exemption excuses taxpayers who are 65 or older from income tax if their "net income" is $24,000 ($18,000 for single filers). The exemptions increase to $32,000 for married filers, surviving spouses and heads of household in 2009, and $24,000 for single filers.

"Net income" is roughly equivalent to federal adjusted gross income, except it is reduced by the the Iowa capital gain deduction, the deduction for college savings Iowa contributions, and the additional Iowa health insurance deduction.

The bill also phases out the taxation of social security retirement income in Iowa.

Current law: In computing federal taxes, 50% of social secuirty benefits are taxable if income exceeds $32,000 ($25,000 for single filers and heads of household), and 85% are taxable if income exceeds $44,000 ($32,000 for singles and households). Iowa doesn't tax the 85% portion.

New rules: Iowa will phase out its tax on social security benefits over eight years. The amount now subject to tax will be reduced by the percentages below:

          2007     32%
          2008     32%
          2009     43%
          2010     55%
          2011     67%
          2012     77%
          2013     89%
          2014    100%

TO WHAT END?

Supporters of the bill say that it will help keep retirees from leaving Iowa. Iowa's population today is the fourth-oldest in the country. By 2030, Iowa is projected to have 227,000 more people over 65 than it does now, and 246,000 fewer people between 18 and 44. Keeping old folks seems like the least of Iowa's problems.

Senator Mary Lundby says that many Iowa seniors struggle with their bills. That is certainly true. So do many younger Iowans. There are plenty of Iowans aged 18-54 who are struggling to feed their families, make mortgage or rent payments, keep the car going, pay for health insurance, and buy $2.90 gasoline. Statistically, these younger Iowans are all likely to have a lower net worth than the beneficiaries of these new tax breaks. The census bureau says that in 2000, median net worth of households under age 35 was about 6.65% of that of households 65 and up. So if you want to help struggling Iowans, a tax break based only on age is misdirected; while there are poor old Iowans, the old folks are less likely to be poor than the kids.

But we have an election coming up, and old folks tend to be reliable voters, so here we are. My hat's off to the four senators and six representatives who didn't vote to stick it to the rest of us.

Prior Coverage: GIVE US YOUR OLD, YOUR CREAKY, YOUR BINGO PLAYERS...

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