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Weiss: Rhode Island Lawmakers Poised to Give Retirees Financial Tax Relief

Thursday, June 04, 2015

 

During the 2014 legislation session, Rep. Robert E. Craven, (District 32) introduced and successfully pushed for passage in the General Assembly.  This legislative proposal would ultimately being signed into law by the Governor. Little did the North Kingston law maker realize that door knocking to get reelected in last November’s election would give him an issue to tackle on Smith Hill this year.

At hundreds of homes, he heard the same issue from his older constituents. One such comment was etched sharply in Craven’s memory:  “You’re a nice guy, buy I am not going to vote for you because I am leaving the state, the older voter told him.  The puzzled lawmaker asked “why?”  The response, “We decided the state is so expensive to live in because of taxes we’re going to sell our house and move to Florida.  Wanting the specifics, Craven asked, what specific tax bothers you?  “We are only of a few states that tax social security benefits, that’s the straw that broke the camel’s back,” said the older voter.

Craven’s legislative proposal, H 5000, was heard Wednesday night before the House Finance Committee.  Strongly supported by House leadership, he says, the legislation would ease the tax burdens on Rhode Island retirees by exempting them from paying state income tax all Social Security benefits as well as income received from federal, state and local government retirement plans, disability benefits, military pensions and private pension plans and deferred-compensation plans.

Among its more than 40 co-sponsors are Rep. Stephen M. Casey (D-Dist. 50, Woonsocket), Rep. Michael A. Morin (D-Dist. 49, Woonsocket), Rep. Samuel A. Azzinaro (D-Dist. 37, Westerly) and Rep. Cale P. Keable (D-Dist. 47, Burrillville, Glocester).

If enacted, Rhode Island would join 27 other states – including Massachusetts and Maine – and the District of Columbia that specifically exempt Social Security income from taxation. (Although Rhode Island does not specifically tax Social Security benefits, that income is identified on federal tax returns. Since Rhode Island’s income tax is based on the federal adjusted gross income of federal tax form filers, the end result is that Rhode Island generates a portion of its income tax collections from Social Security benefits.)

According to Craven, his legislative proposal would financially benefit Rhode Island seniors who receive retirement benefits.  ”After paying into the Social Security system their entire working lives, or putting a little money away into private pension plans, or working at jobs that provide them with a pension, it doesn’t seem right that retirees are having taxes eat away at benefits they depend on for their very livelihood,” he says.

“Retirees living on a fixed income are probably more severely impacted by taxes and tax increases than other population groups,” observes Craven. “If we are committed to helping retirees have a safe and secure life in their later years, and if we want to help seniors afford to stay in Rhode Island rather than moving to more tax-friendly locations, we need to ease their financial burdens. Exempting retirement income from the state income tax is one step we should take,” he adds.

Tax Exemption in House Budget

Weaving its way through the legislative process Craven ultimately expects his legislative proposal to be modified to not give older tax payers a complete exemption on paying taxes for their social security income.  Specifically, the revised language would say, “If your house hold income is under $100,000 or less than your Social Security is tax exempt from state income taxation.”  

While a Senate companion measure has been introduced by Senator Walter S. Felag, Jr., representing Bristol, Tiverton and Warren, an amended H 5000 will be placed in the House Budget because of its cost, says Craven.

The price tag could be between $30 and $35 million, Craven says, noting that better than expected revenues enable it to be funded.  “It’s a priority to the state’s economic recovery, he says.

Older retirees, making from $35,000 to $100,000, from Social security and their pensions, will just put their dollars in the local economy, adds Craven.  “It’s a good investment and we owe it to them.  These retirees have been here all their lives, he says, noting that they ask very little for benefits from municipalities. “They have a lot of time on their hands to volunteer [in their communities] and are very philanthropically included in offering money and services to charities.”

Says House Speaker Nicholas Mattiello, “Representative Craven’s bill to exempt the state tax on Social Security will be included as part of the budget that the House Finance Committee will be considering within the next few weeks.  Governor Raimondo included this exemption for low-wage earners in her original budget proposal, but the House will be broadening it to assist the middle-class retirees as well.  The House budget exempts retirees, age 65 and over, who have income thresholds of up to $80,000 for individuals and $100,000 for joint tax filers.”    

 “We believe that by incorporating Rep. Craven’s bill into the budget, this will begin to stop the exodus of retirees leaving Rhode Island for many other states where there is no state tax on Social Security benefits,”  adds Mattiello. 

Gov. Gina M. Raimondo sees Social Security is a key source of income for older Rhode Islanders, noting that her submitted March budget proposal eliminates state taxes on Social Security benefits for low and middle income seniors “to help them make ends meet and stimulate our economy.”

With Rhode Island unions hit hard by the state’s recent pension reform, Craven’s proposal has received thumbs up from some.

James Parisi, field representative and lobbyist for the Rhode Island Federation of Teachers and Health Professionals, says his union supports Craven's legislative proposal.  “Unlike some other tax cut proposals introduced this session, his bill includes state and local government pension benefits.  About half of the state's teachers were never eligible to participate in social security so any tax cut proposal that is limited exclusively to social security benefits would be unfair to thousands of retired public school teachers," he says.

Jim Cenerini, a lobbyist for Cou ncil 94, AFSCME also says his union is squarely behind H 5000.  “Council 94 believes that legislation deserves careful consideration and support because: many other states provide some type of income tax exemption to retirement benefits/Social Security; in 2014 Kiplinger ranked Rhode Island as one the least tax friendly states for retirees; and since a significant majority of public employees remain in Rhode Island, and contribute to our local economy by spending on goods and services,  it’s important to provide an incentive to remain in-state.”      

A Final Note…

Other legislation proposals have also been thrown into the legislative hopper this session to protect older taxpayers.  H 5446, introduced by Woonsocket law maker Rep. Stephen M. Casey, would protect the pocket books of retired teachers who are receiving a pension from Massachusetts.  “These retirees, whose pension are overseen by Massachusetts Teachers Retirement System, are essentially double taxed because of the state’s tax code,” he says.    

On Friday, May 29, the Rhode Island Public Expenditure Council (RIPEC) issued a report noting that the state may have significantly more funds available in fiscal 2015 and 2016 than anticipated when Gov. Raimondo submitted her budget in March.   Specifically, state revenues are expected to be up by $106.8 million this year and $36.6 million next year, with additional funds available from expenditure reductions.

 For this writer, its sound public policy to use some of the anticipated surplus identified in RIPEC’s report to enact H 5000 and H 5446 to lessen the tax burdens of Rhode Island’s retirees. As mentioned earlier, older taxpayers pull less resources from their cities and towns. But, most important, these retirees have greatly contributed to the quality of life in their communities throughout their working years.  

Herb Weiss, LRI ’12, is a Pawtucket-based writer covering aging, health care and medical issues.  He can be reached at [email protected]

 

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