Personal Income Tax Exemption Personal Income Tax Exemption for Uniformed Services for Uniformed Services

Retirement PayRetirement Pay

Doing the right thing Doing the right thing

for our veterans.for our veterans.Doing things right Doing things right

for Montana.for Montana.

2

Doing the Right Thing

for our Veterans:

•Servicemembers have spent years enduring hardships to protect our freedom

•Honor and support them

3

“The People declare that Montana servicemen, servicewomen, and veterans

may be given special considerations determined by the legislature”

Article II, Section 35

Montana Constitution

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Doing Things Right

for Montana:

Exemption will attract new residents

Positive Financial Impact

Enhanced Technical skills

This is by no means a NEW This is by no means a NEW idea. idea.

Many States have changed Many States have changed their tax codes in order to their tax codes in order to make residency in their States make residency in their States attractive to military retirees.attractive to military retirees.

EXEMPTIONSEXEMPTIONSA HISTORYA HISTORY

Eighteen (18) States exempt 100% of Eighteen (18) States exempt 100% of military retirement pay from State military retirement pay from State Income taxation.Income taxation.

1. 1. AlabamaAlabama 2. Hawaii 2. Hawaii 3. Illinois3. Illinois

4. Kansas4. Kansas 5. Kentucky 5. Kentucky 6. Louisiana6. Louisiana

7. Massachusetts7. Massachusetts 8. Michigan 8. Michigan 9. Mississippi9. Mississippi

10.Missouri*10.Missouri* 11. New Jersey 11. New Jersey 12. New York12. New York

13. North Carolina 14. Ohio13. North Carolina 14. Ohio 15. Oregon15. Oregon

16. Pennsylvania16. Pennsylvania 17. Wisconsin 17. Wisconsin 18. New 18. New Mexico *Mexico *

* Pending* Pending

BACKGROUNDBACKGROUND

There are nine (9) states with no PersonalThere are nine (9) states with no Personal

Income Tax (PIT):Income Tax (PIT):

AlaskaAlaska Florida Florida New New Hampshire* Hampshire* TexasTexas Wyoming Wyoming South Dakota South Dakota

Nevada Washington Nevada Washington Tennessee* Tennessee*

* * Only tax interest income derived from out of state Only tax interest income derived from out of state institutions.institutions.

BACKGROUNDBACKGROUND

Seventeen (17) States provide Seventeen (17) States provide partial exemption.partial exemption.

Montana is one of these. However, Montana is one of these. However, such exclusion is meaningless such exclusion is meaningless because:because:

Up to $1,600 in interest income Up to $1,600 in interest income • Must be 65 or olderMust be 65 or older

Up to $3,600 income Up to $3,600 income • No exemption if gross income exceeds No exemption if gross income exceeds

$30,000$30,000

NOTE: Railroad Tier I & II is the ONLY retirement NOTE: Railroad Tier I & II is the ONLY retirement income that is 100% exempt in Montanaincome that is 100% exempt in Montana

BACKGROUNDBACKGROUND

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This full page ad appeared in

several editions of the Military

Officers of America monthly

magazine “The Military Officer” distributed to

358,000 members each

month.

If Panama recognizes the benefits

military retirees have to offer, why

does Montana

ignore them?

10- The Military Officer, June 2008

So…..So…..What do they know What do they know

that we don’t?that we don’t?

EXEMPTIONSEXEMPTIONS

““States that provide relatively States that provide relatively high tax exclusions for all high tax exclusions for all taxpayers in an age group taxpayers in an age group presumably are acting to attract presumably are acting to attract retired people to the state, or to retired people to the state, or to keep retired residents from keep retired residents from moving to another state with a moving to another state with a tax regimen more favorable to tax regimen more favorable to them.”them.”

- National Conference of Legislators- National Conference of Legislators18 September, 200318 September, 2003

In Montana,In Montana,“…“….older workers will play a large role in .older workers will play a large role in

the state’s labor force in the future. the state’s labor force in the future. Increasing employment among this Increasing employment among this group will be a key component of any group will be a key component of any efforts to combat declining labor force efforts to combat declining labor force participation”participation”

-Montana Department of Labor & -Montana Department of Labor & Industry, 2008Industry, 2008

• Statistics indicate the State income Statistics indicate the State income tax structure is a driving factor in a tax structure is a driving factor in a military retiree’s selection of military retiree’s selection of primary residence after leaving primary residence after leaving active duty.active duty.– States where tax exemption or substantial

tax relief exists attract large retiree populations out of proportion to total State population.

WHY EXEMPT MILITARY WHY EXEMPT MILITARY PENSIONS?PENSIONS?

Revenue gains provided to MT businesses.Revenue gains provided to MT businesses.Skilled, mature workforceSkilled, mature workforceLittle or no impact on social welfare systemsLittle or no impact on social welfare systemsAdditional tax revenues for the state Additional tax revenues for the state

treasury.treasury.

WHY EXEMPT MILITARY WHY EXEMPT MILITARY PENSIONS?PENSIONS?

SO WHO IS A MILITARY RETIREE?SO WHO IS A MILITARY RETIREE?

NOT YOUR AVERAGE NOT YOUR AVERAGE RETIREE!RETIREE!

First and foremost, he/she is NOT retired. An average profile of a military retiree would be:

Younger - 39 to 44 years old Average annual pension is $30,044* Possesses significant service-acquired skills

• Management, engineering, technology, education, and medical fields

* New retiree average pension based on 28% Officer, 72% Enlisted – 2008 military pay chart data

NOT YOUR AVERAGE NOT YOUR AVERAGE RETIREE!RETIREE!

(cont.)(cont.)

Not only needs to work – wants to work. Retiree spouses will bring employable skills. Entrepreneurially inclined – will create small businesses and more employment. Well positioned to meet new industry employment needsVolunteerism - part of military culture

- DoD actuarial statistics

• Elimination of State taxes on military Elimination of State taxes on military retirees represents a transfer of Federal retirees represents a transfer of Federal funds without any negative effect on:funds without any negative effect on:– Community SchoolsCommunity Schools– ServicesServices– Medicaid or welfareMedicaid or welfare

• Additional benefits- an influx of skilled Additional benefits- an influx of skilled engineers, technicians, physicians , health engineers, technicians, physicians , health service workers and educational instructors.service workers and educational instructors.

• StabilityStability for economy in times of economic for economy in times of economic downturndownturn

BUT MOST BUT MOST IMPORTANTLY……IMPORTANTLY……

62% of military retirees live in these fourteen (14) states62% of military retirees live in these fourteen (14) statesResidentsResidents Exemption StatusExemption Status 3 yr pop. 3 yr pop.

gain/lossgain/lossAlabamaAlabama 52,444 52,444 Total exemption Total exemption + 2,834 + 2,834 ArizonaArizona 52,582 52,582 Significant exemption + Significant exemption +

2,5602,560CaliforniaCalifornia 172,341172,341 No exemptionNo exemption - 16,301 - 16,301FloridaFlorida 186,224186,224 Total exemption Total exemption + 3,684 + 3,684GeorgiaGeorgia 85,256 85,256 Significant exemption + 6,012Significant exemption + 6,012IllinoisIllinois 34,095 34,095 Total exemption + 1,481Total exemption + 1,481New YorkNew York 36,198 36,198 Total exemption Total exemption + 618 + 618NevadaNevada 27,164 27,164 Total exemption + 1,086 Total exemption + 1,086North CarolinaNorth Carolina 80,055 80,055 Significant exemption + 6,766 Significant exemption + 6,766 PennsylvaniaPennsylvania 47,129 47,129 Total exemption + 1,679 Total exemption + 1,679

South CarolinaSouth Carolina 52,466 52,466 Significant exemption + 2,457 Significant exemption + 2,457TexasTexas 180,169180,169 Total exemption + 6,237 Total exemption + 6,237VirginiaVirginia 138,962138,962 Significant exemption + 11,178 Significant exemption + 11,178WashingtonWashington 69,255 69,255 Total exemption + 1,878 Total exemption + 1,878

Sub Total 1,214,340Sub Total 1,214,340

MONTANA: MONTANA: 8,326 8,326 No exemptionNo exemption +706 +706

WHERE DO THEY WHERE DO THEY RETIRE?RETIRE?

• There are 1,859,677 paid military retirees There are 1,859,677 paid military retirees across the nation.across the nation.– Officers = 519,396 (28%)Officers = 519,396 (28%)– Enlisted = 1,340,281 (72%)Enlisted = 1,340,281 (72%)

• $43,573,120,000 was the total of DOD $43,573,120,000 was the total of DOD transfer payments to the 50 states and transfer payments to the 50 states and overseas (average $23,430/retiree)overseas (average $23,430/retiree)

*2007 Actuarial statistics from DOD on the Military *2007 Actuarial statistics from DOD on the Military Retirement SystemRetirement System

DEMOGRAPHICSDEMOGRAPHICS

• Montana now has 8,326 Retiree ResidentsMontana now has 8,326 Retiree Residents• No exemptionNo exemption for personal income tax for personal income tax

(PIT)(PIT)• 706 new retirees in last 3 years (Avg gain 706 new retirees in last 3 years (Avg gain

= 235/yr)= 235/yr)• 238,574 military retired in US during this 238,574 military retired in US during this

3 year period. 3 year period. – MT share is .36%MT share is .36%

MONTANA DATAMONTANA DATA

*2007 Actuarial statistics from DOD on the Military Retirement System*2007 Actuarial statistics from DOD on the Military Retirement System

State 1993 Retirees 2006 Retirees Increase Per Year Average

AZ 41,802 52,982 +11,180 799Substantial exemption no tax on S/S

CO 40,328 47,065 +6,737 481Substantial exemption

NV 19,949 27,164 +7,215 515 No State income tax

TX 158,495 180,169 +21,6741,548No State income tax

Montana 6,003 8,026 +2023 144

Conclusion: We are being rejected by retirees opting for

residency in the Southwest in favor of Arizona, Colorado, Nevada and Texas

STATE GROWTH RATESSTATE GROWTH RATES

• Military retirement income is not impacted by job layoffs, recessions or depressions (recession proof)

• Military Retirees receive Cost of Living Adjustments (COLA) on their military retirement income, social security and concurrent receipt disability payments

• Many retirees also have VA pensions• Under age 65 military retirees are covered by the

military TRICARE health system• Over age 65 military retirees are covered by

Medicare and the military TRICARE for Life health system

ECONOMIC ECONOMIC STABILITYSTABILITY FOR MONTANAFOR MONTANA

• $89,670,000 dollars were spent on retiree healthcare in Montana in 2007

• That amounts to $10,769 per retiree• Federal dollars bring in medical services

that may not be supported by smaller populations

IMPACT ON MONTANA IMPACT ON MONTANA ECONOMYECONOMY

Healthcare Dollars Healthcare Dollars (TRICARE and Direct Care (TRICARE and Direct Care

systems)systems)

MONTANA MILITARY MONTANA MILITARY RETIREE INCOME BY AGE RETIREE INCOME BY AGE

($millions)($millions)

0 50 100 150 200 250 300 350

81 plus

72 to 81

62 to 71

52 to 61

42 to 51

to 41

Mil Ret

2nd Job

Soc Sec2nd Ret

Millions of dollars based on 2006 DOD data

• Data obtained from the 2007 DOD Statistical Report on the Military Retirement System.– 7,785 military retirees subject to Montana

PIT– Associated Federal Transfer funds of $ 158,688,000/yr– Estimated Montana PIT revenues of

$6,347,520* (assumed tax rate of .040) on existing retiree

base at pension average of $ 30,044*/year)

2007 PIT PAID BY 2007 PIT PAID BY MILITARY RETIREESMILITARY RETIREES

• Calculation Basis:– 1,000 military retirees (post 2008)– 28% Officer at median rank O-4/24 years

service– 72% Enlisted at median grade E-7/22 years

service– Estimated transfer funds (retirement)

$30,044,000/1000 retirees/year 280 Officers =$11,956,000* 720 Enlisted= $18,084,960*

*2008 Military Pay Tables

PROJECTED PIT PROJECTED PIT REVENUESREVENUES

(based on 1000 new retirees)(based on 1000 new retirees)

• The average pension for a military retiree couple is $30,044.*

• Expected civilian employment is estimated at $46,748 /year/retired family

• Income tax gains of an estimated $1,869,920 in State income taxes for each 1,000 military retirees through their civilian employment.

• These state income tax monies will be in addition to the major tax gains realized for the significant new business generated in the economic community through the multiplier impact of retirees pensions.

Attracting and retaining 1,000 new military retirees in five years is a realistic goal under this program!

*Based on 2008 pay tables, 28% Officer - 72% Enlisted

PROJECTED PIT PROJECTED PIT REVENUESREVENUES

In addition to tax revenues gains, a myriad of other benefits will be gained.

1. Federal Transfer Funds in hundreds of millions of dollars.

2. A multiplier effect on these transfer funds resulting in hundreds of millions of dollars being revenues applied to new home construction, property, furnishings and appliances.

3. An infusion of significant technical, management and educational skills.

4. A second career for many who create new business entrepreneurial startups creating new job growth and employment.

5. Essentially no impact on the school system as most children of retirees have reached or are near maturity.

6. Minimal impact or drain on law enforcement resources.

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SUMMARY

7. Tax revenues derived from property values. 8. No welfare impact due to income level9. No impact on Medicaid as health insurance is well

established (TRICARE for those under 65 and Medicare plus TRICARE for Life for those over 65).

10. Potential leverage against future base closures.11. Increase in Montana income tax revenues due to

retiree civilian employment activities and increased profit/salaries for new industry and small businesses.

12. Resiliency factor for economy in terms of economic down turns as retirees receive Cost of Living Adjustment on military retirement, disability and Social Security incomes.

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SUMMARY (continued)

• Military Retirees• Businesses within the State• New jobs created by entrepreneurial retirees• Increase in Gross Receipts Taxes• Availability of skills to meet industry growth• Tax increases to the State• Workforce enhancement

EVERYONE WINS!

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Organizations that Organizations that endorse this Bill:endorse this Bill:

MT American LegionMT Veterans of Foreign WarsMT Disabled American VeteransMT Enlisted AssociationWestern MT Military Officers’ AssociationMT Sons of the American Legion

“The People declare that Montana servicemen, servicewomen, and veterans may be given special

considerations determined by the legislature”

Article II, Section 35Montana Constitution