Helping veterans is a politically and morally safe goal for legislators at the Capitol, and bills intended specifically for that population come up repeatedly. Unfortunately, veteran-specific bills often miss the mark on helping the most sympathetic military families by focusing on retirement income. Only a fraction of veterans receives a pension, since most military members aren't career soldiers and thus aren't eligible.
While veterans tend to do better financially than their civilian counterparts, about 8 percent still live in poverty in Arkansas, 361 are homeless and 19,300 depend on SNAP food assistance. Those struggling veterans generally are not the families of career soldiers who retire with pensions.
State Rep. Scott Baltz (D-Pocahontas) wants to partially exempt retirement income from the state income tax for all veterans, and Governor Hutchinson recently indicated a plan to completely exempt military pensions from state income tax. The idea to make Arkansas more "veteran friendly" is a noble cause. However, Baltz estimates that his plan would benefit only about 24,000 retired veterans, fewer than a quarter of the retirement-aged veterans in Arkansas. Of the nearly 250,000 total veterans in Arkansas, about 90 percent would not benefit from this discount.
Baltz' bill would help some veterans, but not younger veterans starting new careers and those with families. Those currently working minimum-wage jobs would get nothing. Thousands of the lowest-income veterans with retirement income lower than the $6,000 that is already tax exempt would get nothing.
Many of the veterans who would not benefit from this bill are women and minority groups. Women are less likely to serve, but when they do, they experience poverty at much higher rates than male veterans. Disabled and nonwhite veterans also tend to live in poverty at higher rates than the general population of veterans. Many of these working veterans would not benefit from tax exemptions on retirement income right now, and are unlikely to end up with the big pensions that see substantial savings from a retirement tax discount later on. With this type of retirement income exemption, a veteran who returns from a tour of duty and takes a low-wage service industry job to support his or her family would get no immediate benefit, while a retired Army engineer with a pension would get the maximum benefit.
Bills like this also intend to make Arkansas a more attractive place for veterans to retire. However, Arkansas is already gaining veterans. Our total veteran population increased between the years 2000 and 2015, while some neighboring states (Missouri and Louisiana) had decreasing veteran populations. We also have a higher percentage of retirement-aged veterans than our neighboring "no income tax" state, Texas.
If your idea is to help veterans on paper or for political expediency, this is your bill. But if your idea is to help veterans that need help, there are better ways — like a state Earned Income Tax Credit. The first strategic difference between an EITC and a veteran retirement income exemption is that the EITC is targeted toward working families based on family structure and need. For every dollar you earn, your credit increases, until it plateaus and eventually tapers off as you move into a middle-class income range. The distinction is that it helps working families now and changes lives long-term. There are decades of evidence that EITCs have the ability to reward work, strengthen the middle class and reduce child poverty.
The second major difference between a state EITC and a veteran retirement exemption is that the EITC also helps students, health care workers, construction workers and any low-income working family in Arkansas, regardless of military status. The families helped by this program just happen to include 32,000 of the most financially vulnerable veteran and military families. Giving veterans a break on their retirement income might be politically popular, but it misses the heart of the problem: making sure those who made sacrifices for our country don't have to raise their children in poverty.
Eleanor Wheeler is a senior policy analyst for Arkansas Advocates for Children and Families.