Gov. Paul LePage renewed his pledge Thursday to stop collecting state income tax on pension benefits, explaining it would attract well-heeled retirees back to the state.
We have long heard stories about accountants who advise their wealthy clients to establish permanent residences in more tax-friendly climes to save money.
On the other hand, a scholarly study by the University of Massachusetts Amherst found that “taxes do not play any notable role in causing people to leave a state.”
But while the governor’s plan sounds good on the surface, there is doubt the state can afford the $100 million annual hit in revenue it would cost.
More likely, the governor will begin picking and choosing among different types of retirees to favor with tax-free status, and that is certain to open an ugly can of worms.
Speaking before the Portland Regional Chamber of Commerce on Thursday, Gov. LePage renewed the pledge he made in January to ultimately end the taxation of pension benefits.
Retired people who live six months and a day in Florida, for example, can establish residency there and escape Maine’s income tax, one of the highest in the country.
What’s not clear is how many of those people would choose to return if they could. Many would likely remain in Florida simply to enjoy the better weather and year-round golf.
After living here for 60 years, many people are fed up with pushing snow and shivering through our long winters.
So far, the governor has talked only of exempting pension income from taxes. Usually, this is taken to mean the defined-benefit pensions a minority of retirees receive for working in the military, as teachers, in government or for large employers.
However, the governor’s office indicated Friday that the exemption may extend to 401(k) benefits, although not IRAs, for some reason.
What’s more, retired U.S. postal workers would not receive the benefit, nor would elderly “retirees” who continue working, whether by choice or necessity, “into retirement.”
The governor has already indicated a desire to start by exempting military pensioners, but there is no explanation why.
Do they earn less in retirement? Are they more likely to flee the state? Do they make better retirees? Are they more likely to vote Republican?
Then there’s the small problem of the $100 million of missing revenue.
Either the Legislature would have to raise taxes on everyone else to make up the difference or cut state government spending by an equal amount.
Either that, or the state’s economy would have to grow by leaps and bounds over the next several years, and that seems unlikely.
The governor has run as a tax-cutter, so raising taxes is out of the question.
That leaves even more budget cuts.
Over the years, the Legislature has traditionally trimmed its own budget by cutting the tax revenue it shares with municipalities and school districts.
That has meant fewer municipal services, and fewer teachers and police officers to serve the public.
The governor’s idea is, at this point, just an idea with little more than anecdotal evidence to back it up.
Would a tax cut truly bring retirees flocking back? Would it keep people from moving away when they retire? Would the elderly returnees be an economic benefit to the state or, instead, require extremely expensive state services?
All unanswered questions.
Perhaps the Muskie School at the University of Southern Maine could be commissioned to fully study these questions and provide facts for the Legislature to consider.
Some research would be useful before putting such a dent in the state’s budget.
The opinions expressed in this column reflect the views of the ownership and editorial board.