All senior citizens in Utah may have a large chunk of their pensions exempted from state income tax.
Gov. Norm Bangerter is studying that option in preparation for a special legislative session he'll call this fall."If we did that (exempted pensions), it could be a fine economic development tool; tell senior citizens to move to Utah to retire (because their retirement pay would stretch further)," the governor said in an interview Tuesday.
Bangerter said he's looking at giving the retirement break as a way to kill two birds with one stone: get his $19 million tax cut and solve a legal problem created by a U.S. Supreme Court decision.
The high court ruled in a Michigan case that it's illegal to exempt state retirees' income from state tax while taxing federal retirees' income. Utah does just that, and clearly that policy can't continue.
Listing options lawmakers could take in reducing taxes this year, Bangerter said, "I think we'll put the retirement option in the formula."
Bangerter, a Republican, failed to get the GOP-controlled Legislature to reduce taxes by $19 million this past general session. As part of his re-election effort last year, Ban-gerter promised to reduce taxes when possible and freeze property tax rates. Lawmakers didn't give him the property tax freeze, either.
When those two campaign promises failed, he said he'd call a special session to deal with those issues. The high court's decision now makes a special session mandatory, and Bangerter said he'll add tax relief and the property tax freeze to the agenda. "I'll call the session in the fall, not this summer," he said.
Bangerter's budget office and the State Tax Commission are studying how much of a tax break could be given all retirees over the age of 65.
It costs the state about $4 million a year to exempt state retirees' pensions. It would cost an estimated $30 million to exempt all retirees' pensions, age 65 and older, state officials estimate.
No decision has been made, however, if such an exemption would be made retroactive.
"We can't say yet what we could `buy' for $19 million. That is, how much of a retiree's pension we could exempt," said Dale Hatch, Bangerter's budget director. But it would likely be a pretty good chunk. To get everyone on a level playing field, the state would likely increase state retirees' pensions by a total $4 million (the current total exemption) and then exempt all retirees' pensions at the same level - the first $5,000 in pension, the first $10,000, whatever $19 million would allow.
There are other options to the retirement problem. The state could start taxing state retirees' pensions (state retirees have already promised to sue if that happens); federal retirees' pensions could be exempted along with state retirees', which would meet the court's ruling; or all pensions of retirees 65 and older could be exempt up to a certain income level.
"I've already given them (legislators) some options on tax reduction. I said look at the sales tax, look at lower income tax rates, look at the property tax. Now I want to add look at the retirement income. It could be a real drawing card for economic development," Bangerter said.