Gov. Asa Hutchinson
has issued a news release bragging on
a tax cut he supported that takes effect Jan. 1 to exempt military retirement pay
from the state income tax.
Hutchinson notes that many military retirees return to civilian life at relatively young ages after 20 years in service and bring skills that are useful to the state. He said Arkansas is currently home to 22,000 military retirees and the tax break should encourage others.
The benefit also goes to surviving spouses and children receiving survivor benefit pay.
The Pew Trust' Stateline has written abou
t an increase in the number of states offering the lure for military retirees. By that accounting in 2015, Arkansas will become the 15th of the 41 states with an income tax to provide a total exemption for retirement pay. Another 19 and the District of Columbia provide a partial exemption, as Arkansas once did. Nine states provide no benefit, including California and Virginia.
“It’s a no-brainer,” said Rep. Bob Dettmer. The Republican chairman of the House Veterans Affairs Committee in Minnesota is fighting for tax-exempt military pensions. “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.”
But David Brunori, deputy publisher of Tax Analysts, a specialty publication, says any tax exemption of retirement income is bad policy.
“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.”