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Tax Law

State Net Capitol Journal – August 17, 2015; States Back Tax Breaks for Military Vets

Budget & Taxes

States Back Tax Breaks for Military Vets

Despite facing a budget shortfall this year, Maryland doubled its income tax exemption for military retirement pay to $10,000. And a budget hole forced Connecticut to raise taxes on its most prosperous corporations, but it still managed to do away with its income tax on military pensions.

The two states aren’t the only ones that have granted tax breaks for military retirees. Of the 41 states with an income tax, 14 exempt military pensions completely, according to the National Conference of State Legislatures. Twenty others provide partial exemptions.

For Minnesota state Rep. Bob Dettmer (R), who backed an unsuccessful effort to exempt military pensions in his state this year, the issue is “a no-brainer.”

“Most of them [retired military vets] are in their 40s. They are going to buy homes, they are going to buy vehicles and buy groceries. They bring economic value to your state. The skills they have learned through 20-plus years in the military can be transferred into civilian jobs.”

David Brunori, deputy publisher of Tax Analysts, disagrees.

“Exempting military pensions from tax is good politics — everyone loves veterans,” he said. “But it is not targeted [to low-income people]. Some veterans go on to make a lot of money in the private sector and end up pretty well off. There is no reason in the world to exempt their income from tax.”

Rhode Island also considered exempting military pensions this year, but opted to provide an exemption for Social Security payments instead. According to House Speaker Nicholas Mattiello (D) the decision was dictated largely by the fact that neighboring states Maine and Massachusetts don’t tax Social Security benefits. (STATELINE.ORG)

AL Back To Square One On Budget

The Alabama Legislature passed a handful of bills during a special session on the budget that ended last week, but none of those measures is likely to have much of an impact on the state’s deficit, projected to be at least $200 million. The House and Senate were unable to find common ground on how to address the shortfall, with each chamber killing the other’s spending plan.

Gov. Robert Bentley (R) called the session “a failure.”

“They have known about this issue, about this problem, for a number of months,” he said. “The first failure occurred in the regular session. We called them back in in the special session, and they failed to pass a budget.”

House Ways and Means chairman Steve Clouse (R) who proposed an amendment to cut $156 million from Medicaid, was a bit more upbeat.

“We’re back to square one,” he said. “But I think square one is a lot clearer now.... I put up the amendment to isolate what I call the big elephant in the room, Medicaid, to try to generate some interest there, which it certainly did.”

The governor said he would call another special session, which is expected to convene before the start of the 2016 fiscal year, on Oct. 1. (MONTGOMERY ADVERTISER, LEXISNEXIS STATE NET)

State Websites Shine Light On Spending

Every state in the nation provides some sort of public website that provides information about government spending. The “checkbook” sites allow taxpayers to see who the hundreds of billions of dollars states spend every year on government contracts, subsidies and tax credits are going to and for what.

State officials say the websites can help save taxpayers’ money. For instance, Massachusetts’s site enabled the state to eliminate $3 million in paperwork, printing and postage costs related to public information requests and interaction with vendors. Texas’ site facilitated a renegotiation of the state’s copier machine lease, saving the state $33 million over three years. And a reporter used South Dakota’s site to conduct an investigation of subsidies that uncovered $19 million in redundancies there.

“I think these websites are very important,” said Kinney Poynter, executive director of the National Association of State Auditors, Comptrollers and Treasurers. “More transparency provides better information for all of those involved, whether they be citizens, contractors or legislative bodies.”

Some sites are better than others, however. Eighteen received grades of between C and F in this year’s annual evaluation of the sites by the U.S. Public Interest Research Group (U.S. PIRG). The sites run by Alaska, California and Idaho were the lowest performers, earning a grade of F for the second year in a row.

“These three are not user-friendly,” said Phineas Baxandall, a senior analyst for U.S. PIRG. “It’s like finding a needle in a haystack.”

At the opposite end of the spectrum is Ohio’s new site,, which was launched in December of last year and earned the only A-plus grade in a national review by the Massachusetts Public Interest Research Group (MASSPIRG) Education Fund and Frontier Group. The site employs a Google-style search engine and interactive charts that allow users to search, compare and share spending data from the past eight fiscal years.

“This site is not built with the MIT computer science major in mind,” said Ohio Treasurer Josh Mandel (R). “It’s built with the most basic computer user in mind.”

But it may be encouraging for the states with checkbook sites that didn’t fare well in the ratings to know that Ohio’s former site scored a D-minus last year. (STATELINE.ORG, MASSPIRG.ORG)

Budgets In Brief - August 17 2015

Kansas Retirement System Woes: Moody’s Investors Service has given $1 billion in pension obligation bonds proposed by KANSAS an Aa3 rating, a notch below the state’s current overall rating. The Wall Street rating company said the bonds would do little to solve the financial problems with the state’s public employee retirement system and could create additional problems in the future (LAWRENCE JOURNAL WORLD). * NC No New Budget: NORTH CAROLINA lawmakers approved a continuing resolution to keep state government running through Aug 31. The state has been operating without a new budget since the fiscal year began on July 1 (NEWS & OBSERVER [RALEIGH]). * NM Revenue Looking Up: Preliminary numbers indicate that NEW MEXICO took in over $100 million more in revenue than forecast in the 2015 fiscal year that ended in June. But some lawmakers remain cautious because lagging oil and natural gas prices have forced revenue estimates to be revised downward multiple times (ALBUQUERQUE JOURNAL NEWS). * UT Committee for Increased Transportation Tax: UTAH business leaders said last week that they have formed a public issues committee to campaign for an increase in the state sales tax for transportation. The news came just days after the Salt Lake County Council decided to place such a tax on the Nov. 3 ballot, which other counties are also expected to do (SALT LAKE TRIBUNE). * MA Signs HB 3659: MASSACHUSETTS Gov. Charlie Baker (R) signed legislation (HB 3659) authorizing a sales tax holiday for the weekend of Aug. 15 and 16 (BOSTON GLOBE, LEXISNEXIS STATE NET).

- Compiled by KOREY CLARK

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