Mo. lawmakers consider exempting retirement benefits from state taxes

Wednesday, January 31, 2007
Fritzi Lainoff, 77, of St. Louis, testifies against House bills which would eliminate state income tax on Social Security payments during a committee hearing, Tuesday, Jan. 30, 2007, at the state Capitol in Jefferson City, Mo. The tax cut would benefit only Missouri's wealthiest seniors, Lainoff said. (AP Photo/Kelley McCall)

JEFFERSON CITY, Mo. -- The leader of the state House wants to give some Missourians a tax break, but some of the seniors targeted for the break don't want it.

Fritzi Lainoff, 77, of St. Louis urged a special House tax committee on Tuesday to reject a $160 million proposal exempting many retirement benefits from state income taxes. Instead, she said, the state should use the money for health care and senior meals programs.

The tax break would eliminate state income taxes on Social Security payments, teacher pensions and pensions from police and fire departments that opted out of Social Security.

Lainoff estimated she would get less than $5 from the tax break. She said it was the principle, and not money, that fueled her opposition.

"I'm in total disagreement with giving people tax breaks," she said. "I know I have to pay my share of taxes if only so that I know that I have enough police in my district, enough firemen in my district and so that my roads are good."

Supporters of the plan, including House Speaker Rod Jetton and Gov. Matt Blunt, said eliminating state taxes on Social Security benefits would put Missouri in line with most states and abolish a "double tax."

Jetton, R-Marble Hill, also urged committee members to consider expanding the proposed tax break to make all retirement benefits -- public and private -- tax exempt. If lawmakers were to do that, the price tag would jump to about $380 million annually.

Social Security benefits are already exempt for individuals making less than $25,000 for single filers and $32,000 for those who are married.

Jetton said lifting taxes on retirement benefits, military pensions and Social Security entitlements would help attract retirees to Missouri.

"Most of these folks aren't saving a ton of money," he said. "They're spending it, and they're going to help our state's economy."

Proposal scrutinized

According to figures from the Institute for Tax and Economic Policy, Jetton's proposal would help wealthy seniors the most. The Washington-based institute advocates for higher tax rates for the wealthy.

According to the institute, of the 546,000 Missouri income tax filings by seniors, about 247,000 earn too little to pay any taxes on Social Security benefits. Because the figures are based on the total filings, which includes those from single and married seniors, it is impossible to know exactly how many people would get the tax break.

About 136,000 taxpayers, the largest group of filers who would get a tax break, earn between $47,000 and $73,000 and would have a tax cut worth between $127 and $195, according to the institute. The 16,000 taxpayers who earn the most, at least $132,000 annually, would have $1,092 to $1,378 cut, according to the institute.

Jerry Thompson, a corporate marketer who retired in 1992 and moved to Missouri in 2002, said the state's tax on Social Security would have driven him to retire elsewhere, but his wife wanted to move to her hometown of Jefferson City.

Thompson said many seniors on fixed incomes struggle to keep up with increasing bills and health-care costs.

"It's always stuck in my craw that I pay taxes on something I've already paid taxes on," he told committee members.

Missouri AARP, citing the higher benefits for wealthier seniors, wrote in a letter to Jetton earlier this month that the senior advocacy association prefers a tax cut that targets those with low incomes, regardless of age.

Amy Coffman, a lobbyist for the senior group representing 780,000 Missourians, told lawmakers that the association's volunteer board does not want to support "an unwarranted tax cut and then tomorrow ask you to spend more money for health care."

Rep. Bryan Stevenson, the tax committee's chairman, questioned whether Missouri AARP was actually representing its members' wishes. Stevenson, R-Webb City, said Missouri AARP hadn't even polled its members to find out if they oppose the idea.

House Democrats say that while they agree with Jetton that seniors could use some tax relief, cuts should cover more than just retirement benefits.

Rep. Clint Zweifel, D-Florissant, said increasing a tax credit based upon how much is paid in property taxes, establishing an earned income tax credit based on the existing federal model, plus a more modest Social Security benefits exemption would cost the state a little less than Jetton's plan while better targeting the taxes that cause problems for seniors.

Zweifel's proposal would increase the eligibility level for the property tax credit from $25,000 to $30,000 for one person and $27,000 to $34,000 for a couple. It would also exempt Social Security benefits for singles earning less than $42,000 and couples earning less than $50,000.

Some critics said lawmakers shouldn't be considering any tax cuts.

Tom Kruckemeyer of the Missouri Budget Project, a lobbying group that analyzes fiscal policy for its impact on the poor, said state workers in Missouri receive the lowest pay in the nation, the higher education budget is at the same level as it was seven years ago and the formula for funding K-12 education is being challenged.

"The state is not in a place for a substantial tax cut," said Kruckemeyer, a former state economist.

Retirement tax exemption is HB444

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