Iowa Lawmakers Debate Pension Tax Bill

January 30, 2006 (PLANSPONSOR.com) - State of Iowa lawmakers are set this week to consider a plan by House Republicans to drop the state's income tax on pension payments and Social Security benefits.

The goal, according to a Des Moines Register news report, is to encourage more senior citizens to stay in their state, which supporters assert will help spur economic development, investment in small businesses and contributions to local civic organizations.

“Seniors provide a wealth of volunteer hours in your communities, and they are the angel investors that build our ballparks, libraries and community centers. When they leave the state, they leave the communities that raise their grandchildren and employ their children,” said House Speaker Christopher Rants, a Republican fromSioux City, according to the news report.

Currently, the first $12,000 of joint filers’ and $6,000 of a single person’s pension income is exempt from state income tax. Under the new proposal, the tax would be phased out over five years. Iowa seniors already get a break on income taxes. The first half of Social Security income is exempt from state income tax. The rest is exempt if joint filers’ income is less than $32,000 or $25,000 for single filers.

But the Iowa Department of Revenue doubts the state would benefit from the plan. It issued a study saying such an idea would not pay for itself. The department’s study does “not support the contention that there is a mass exodus of retirees from Iowa,” the issue paper says. “Furthermore, there is no compelling evidence that for those retirees that do leave that state, tax policy is the predominant reason for their doing so.”

Jeff Boeyink of Iowans for Tax Relief said that his group regularly hears from people concerned about the tax on retirement income and that this is an issue legislators can act on to keep older Iowans in the state, according to the news report.

Democrats have raised concerns about the tax cut. Democratic Representative Cindy Winckler said she supports Iowa seniors but worries where the money would come from to support such a large tax break. “When you take that significant amount out of the budget, you know there will be cuts someplace unless we do something to replace the revenue,” she said.

The nonpartisan Legislative Services Agency estimated in a report that the measure, when fully implemented, would reduce state tax revenue by $198 million. Republicans criticized the report, saying it didn’t take into account benefits resulting from seniors staying in Iowa.

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