PROVIDENCE, R.I. (AP) — Top lawmakers are pushing to exempt Social Security, pensions and other retirement income from the state income tax as a way to stop seniors from leaving Rhode Island, though how far legislators are willing to go is unclear.
The state stands to lose $20 million to $40 million annually in revenue from the tax on Social Security and $100 million or so more if other retirement income is also exempted. Even the lawmakers say the state can’t afford that, given Rhode Island’s bleak fiscal picture.
They’ve introduced about a dozen bills so far with different ways to structure a cut, to start a conversation about how the state can help retirees.
Democratic Rep. Robert E. Craven Sr. proposed repealing the tax on all retirement income. He first considered focusing his bill on Social Security but expanded it because not all seniors benefit from the federal program.
“I do not expect the bill will fund that broad of a total exemption,” Craven said. “I made it broader, so it would be much easier to retract the landscape the bill would cover versus trying to add to it.”
Rhode Island is feeling the budget pinch with a projected shortfall of $34.5 million for the current fiscal year, the Rhode Island Public Expenditure Council said last month.
Craven said he’d like to see a cut spread across various types of retirement income, with exemptions only up to a capped amount. The gesture would help people see that Rhode Island is headed in the right direction, he said.
Democratic Rep. Patricia A. Serpa’s bill is similar, but she changed the eligibility age from 65 to 62. She doesn’t think hers will pass intact because it’s more expensive.
Changing the tax policy is House Speaker Nicholas Mattiello’s top priority this legislative session.
“Ultimately I would like to exempt many forms of income that retirees receive, but I am aware of our budget limitations,” said Mattiello, a Democrat.
Democratic Gov. Gina Raimondo has said the change “certainly sounds great,” but she questioned where the money will come from. Her spokeswoman, Marie Aberger, said Thursday the governor’s top priority is creating jobs and expanding opportunity for all Rhode Islanders, and she will view these proposals through that lens.
For Social Security, Rhode Island collected $29.8 million in state income taxes in the 2011 tax year from a total of $696.2 million in taxable benefits, according to the state Office of Revenue Analysis. In 2012, the amount of taxable Social Security benefits rose to nearly $834 million, Internal Revenue Service data show, but the state did not have revenue numbers for that year.
Craven said the state would have about $25 million available annually if it shifted to the federal health insurance exchange and made a few other minor cuts.
The amount Rhode Island receives from pension taxes is significantly more. In 2012, the amount of taxable pensions and annuities was nearly $2.2 billion, according to the IRS. Grafton “Cap” Willey, a certified public accountant, estimated that Rhode Island collected more than $100 million in taxes from pensions alone in 2012.
Deputy Minority Leader Patricia L. Morgan said Rhode Island can’t afford to lose that revenue. Morgan, a Republican, wants to exclude Social Security and the first $15,000 of personal income from the tax. Both initiatives would cost the state a total of about $50 million annually, she added.
Morgan said she’s confident $50 million in wasteful spending could be found in the state budget. Morgan is part of a Republican caucus bill to exempt all retirement income, but she said she’d prefer to make cuts incrementally.
Keeping retirees in the state is important, she said.
“When they leave, they take their wealth with them, their contacts, their business acumen, and our state becomes poorer and poorer as a result,” Morgan said.
Willey, a managing director in the tax group at CBIZ Tofias in Providence, said some of his clients are leaving Rhode Island for Florida to save on their taxes but also because of the warmer weather.
“The problem the leadership has is perception,” he said. “They’re faced with studies and surveys on where’s the best state to retire, where are the worst states to retire, and Rhode Island comes up on the bottom because of the tax on Social Security.”