Plan to stop taxing pensions needs hard look

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.

rrhoades@sunjournal.com

The opinions expressed in this column reflect the views of the ownership and editorial board.

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Comments

Gerald Weinand's picture

Those wishing to read the

Those wishing to read the study mentioned in the editorial, The Impact of Taxes on Migration in New England, by Jeffrey Thompson, can find it here:

http://www.peri.umass.edu/fileadmin/pdf/published_study/Migration_PERI_A...

Steve  Dosh's picture

Plan to stop taxing pensions needs hard look

Sunday 11.10.08 10:22 am - ish <3
On one hand , and 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.” †rue ? Hawai'i is hosting the same debate right now . . .
Stop taxing waterfront properties and you will get more Massachusetts millionaires like Mitt Romnay :) . .just a thought Alo'ha from Pahoa , Vacationland :)

 's picture

http://mjperry.blogspot.com/2

http://mjperry.blogspot.com/2007/12/higher-state-taxeslower-state.html

and here is one from the University of Michigan that says the opposite. My wife and I left Maine last Jan. because of the high taxes and cost of energy. We moved to the mountains of eastern TN. no state income tax so a 8.5% increase in pay, property taxes on a nicer house went from $3,500 to $890 a year, energy is cheaper by far and food and gas is less. we thought we would save about $9,000 a year but it looks like it will be closer to $12,000. the chamber of commerce here says there is a lot of interest from people in high tax states about moving here. With no family or friends here it was a major life change for a couple in their 50's but we have adapted nicely since we will have no more Maine winters.

RONALD RIML's picture

Ever ask why

You might not had friends when money is so danged important to you.

Hope you found what you wanted down South.......

 's picture

typical of a liberal to

typical of a liberal to profess concern for those less fortunate than others and then make fun of the same people. Money is not important to me and my wife that is why we give so much to charity. What we do is for the glory of God and not for the glory of man. And certainly not to impress some bitter old fool angry about the unfairness of life. I can't help it if my parents instilled in me the values of hard work, honesty, and not abusing drugs and alcohol. My wife and I were blesssed with a modicum of intelligence and know what it means to delay gratification in order to attain long term goals. If you think the government can create a paradise on earth you don't understand the concept of the fallen nature of man and you must have missed the lessons of the past 90 years in the old Soviet Union. We are imperfect so all human endeavor is fraught with error. I can take some small comfort in one simple fact; based on your picture, what I have gleaned from your comments and profile, and the actuarial table, chances are good you will die long before me so I won't have to see your inane leftist commie drivel much longer. Not that I wish you to die but I remember what Mark Twain once said "I never wished for any man's death but I have read many obituaries with a great deal of glee."
Billy Redden, the boy in the picture is neither retarded nor inbred and he is gainfully employed in Georgia leading a quiet normal life.

RONALD RIML's picture

So who's stereotyping???

I have enough sense to realize that lad was acting in that movie.

You obviously aren't 'acting' when you come out with your 'liberal this and that' crap.

But thanks for your wonderful example of the 'Fallen Nature of Man'

RONALD RIML's picture

Fuzzy math,,,,

8.5% increase in pay????

C'mon, John. Maine doesn't tax your entire pay at 8.5% - it's a graduated rate. Either you don't have a clue, or you are impersonating a Fox News Announcer.

Maine has graduated rate brackets of 2%, 4.5%, 7%, and 8.5% - see http://www.maine.gov/revenue/forms/1040/2011/RateSched_11.pdf

So go spread your B.S. elsewhere to your target audience of Reich-Wing Dummies who don't know better.

 's picture

once again you display an

once again you display an abysmal amount of ignorance. So the state taxes 5% of the first $19,950 and 8.5% of the rest. my wife and I make a lot more than that. Also, stop the name calling. you don't make your argument any more valid.

RONALD RIML's picture

Actually -

It's you who are displaying the abysmal ignorance of taxes.

With you statement of "So the state taxes 5% of the first $19,950 and 8.5% of the rest." you are ignoring exemptions, deductions, etc.

5% of the first $19,950 is $997.50

Tax rate Schedule #3 at http://www.maine.gov/revenue/forms/1040/2011/RateSched_11.pdf for "Married Individuals and Surviving Spouses Filing Joint Returns" specifically states the tax for "$19,950 but less than $39,900" is "$648 plus 7.0% of excess over $19,950"

Check you math, John - $648 is 3.248% of $19,950 - NOT 5%.

You obviously displayed the ignorance here, John.

Wanna try something else and play some more??

 's picture

The previous administration ...

... was all cow**** and no hat. Its leader should have worn one to protect us from the glare. Prince John, and before him Czar Angus (cue TV spot of rolling up sleeves), did their best to chase private sector jobs away and, not to coin a phrase, LePage inherited their mess. He and the legislature are trying to plow away the droppings, acknowledging the political and economic reality: The only jobs government can create are in government. Government can create an environment that's friendly to the private sector.

Claire: Tax cuts should be paid for by spending cuts. LePage is being "conservative" - I want him to call for the elimination of the state income tax for everyone.

Ron: How much did you pay year-to-date in employer taxes? I'll show you mine if you show me yours. Never mind - yours is zero.

Terry: BHO is still a socialist. Proposal after proposal, for 2.5 years, he swears will bring a flood of money or flood of jobs to the country. They haven't and they won't. The only thing that trickles from DC in any direction is male bovine excrement.

RONALD RIML's picture

Are you still on that

Part-time Employer kick???

Be a Man - pay your taxes - and grow up.

 's picture

yeah right

"The only jobs government can create are in government." Are you trying to tell us all of the construction workers fixing the roads this summer are government employees? If not, who is paying for the road work?

CLAIRE GAMACHE's picture

All hat

This administration is all hat and no cowboy. First they rant about voter fraud only to find out it's pretty much non-existent, then harried poll workers only to have them say it's not so, then welfare fraud before they even find out if, where or what it is, and now they are going to eliminate pension taxes before they have even considered how they will pay for it, or if it will do any good for the state. In my opinion, it's all smoke and mirrors. Just don't talk about jobs and people won't notice that you aren't doing anything about creating jobs.

RONALD RIML's picture

Don't buy us off.....

Governor -

Before you quit taxing my pensions, get the jobs in as you promised. Let's see if you're up to your job as I'm up to paying my taxes.

 's picture

again

LePage is still an idiot. proposal after proposal, he swears will bring a flood of money or flood of jobs to the state. They haven't and they won't. Economics do not "trickle down". 8 years of GWB should make that very very obvious. But then if lePage's intent is to hand out financial favors to those people who financed his campaign, then he's continuing in the right direction.

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