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Let's exempt them from taxes in case some of them are poor

August 31, 2011

David Brunori at notes that Maine's Governor proposes exempting all pension income from state income tax:

He says that he wants to prevent retirees from moving to Florida and Nevada. He also wants to alleviate the burden on senior citizens. But there is no evidence that anyone leaves Maine for Florida – and certainly not Nevada – for tax reasons. And some retirees earning a pension do not need the tax break. What LePage's proposal will do is narrow the tax base and force higher burdens on everyone else. I love old folks as much as the next guy. But I would not want to pay taxes for them.

As we've pointed out, being old is a poor proxy for being poor. Many old folks have paid-for houses and savings. There are certainly poor old people. They should be helped because they are poor. The self-sufficient elderly shouldn't get a break on the back of, say, struggling young families.

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I agree from experience in my state. In Pennsylvania, we exempt almost all pensions and IRA withdrawals from state and local taxation. Worse, we exempt those amounts from the calculation of the poverty "special forgiveness" of tax. Therefore I have clients who make over $100K per year in pensions who pay zero PA and local income tax, while I have retired clients who make $9K of rental income but no pension who do pay PA taxes (local is on earned income only). Incredibly unfair. And who complains the most about real estate taxes -- those who pay no income taxes. Low income people should get forgiveness because they are POOR, not because they are a certain age.

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