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The Tentacle


February 8, 2006

Why Tax Military Pensions?

Kevin E. Dayhoff

In his State of the State address, Gov. Robert L. Ehrlich mentioned an important legislative proposal to “exempt from state taxes military retirement income earned by those with two decades of service.”

Can anyone explain why the State of Maryland continues to tax military pensions?

According to a synopsis of the governor’s legislative package, this would be accomplished by expanding “the Maryland Income Tax Subtraction modification so that, in the case of qualified Maryland veterans, 100% of military retirement income is exempted from state taxation if the individual served at least 20 years active duty.”

In his speech, Governor Ehrlich said: “We can pass a bill that should have been signed into law last year...”

In the 2005 the Maryland General Assembly, House Bill 245 and Senate Bill 211 died in the final days of the session, for reasons no one seems to be able to determine? The fiscal note for the 2005 legislation can be found at http://mlis.state.md.us/2005rs/fnotes/bil_0001/sb0211.pdf

Because there are so many military installations in Maryland, almost every Tentacle reader has a friend, neighbor, service club colleague or member of their church or synagogue that is career military. These folks are key community leaders, good neighbors and friends. They all share one thing: a state that mouths the words in appreciating their service, and then promulgates a tax policy that causes them to want to move to another state.

Exacting a tribute from military retirees is shortsighted. As members of the military, they have moved before, they can move again. Delaware and Pennsylvania is more than happy to welcome them. Those states don’t tax military pensions. And if they move to our neighboring states, they will take their contributions to the community and their spending power with them.

At some point, we may want to check the campaign finance reports of the Democrat leadership of the Maryland General Assembly. Considering the buckets of money and jobs leaving Maryland for our neighbor states, from not passing slots, to the Wal-Mart bill and taxing military pensions, one might suspect that our neighboring states have quite a stake in the Maryland Democrat leadership remaining in office.

On Oct. 15, 2003, Governor Ehrlich announced the formation of a Task Force on Military Retirees. It was required to report its findings to the governor and the General Assembly by Dec. 1, 2003. In that report, it found that retired military households spend over $2.5 billion on goods and services in Maryland each year, generating nearly $100 million in sales and real estate tax revenues.

For the 2006 legislative session, the Ehrlich administration has filed Senate Bill 220 and House Bill 312. The fiscal notes are not available as yet.

Senate Bill 220 is co-sponsored by 19 senators. The bill was assigned to the Senate Budget and Taxation Committee. The chair of this committee is Ulysses Currie (D., P. G.) (ulysses.currie@senate.state.md.us). The vice-chair is Patrick J. Hogan, D., Montgomery) (patrick.hogan@senate.state.md.us).

House Bill 312 is co-sponsored by 71 delegates. It was assigned to the House Ways and Means Committee. The chair of this committee is Sheila Ellis Hixson (D., Montgomery) (sheila.hixson@house.state.md.us). The vice-chair is Anne Healey (D., P. G.) (anne.healey@house.state.md.us).

Take a moment to e-mail the chair and vice chair of the appropriate committee that you support House Bill 312/Senate Bill 220. The subject line simply needs to state: “I support HB312/SB220 Income Tax Subtraction Modification Military Retirement Income.” If you choose, you may consider writing a very short and polite reason why; in the body of the e-mail. Remember to include your name, address and phone number.

This legislation ought to pass this year; but considering the opera that we know as the Maryland General Assembly, “should” and “ought to” don’t always happen.

As you consider the merits of this legislation, ponder what the governor said in his State of the State address. “Passing this bill is not only the right thing to do, it is also the smart thing to do. Maryland should be attracting and retaining these talented individuals and their families, not driving them away. Pennsylvania, Delaware, and North Carolina have already passed similar laws… This year, veterans are watching. Let’s make this bill retroactive. Let’s correct last year’s mistake. Let’s get this done!”

Many agree with Governor Ehrlich that “it should be a foremost priority to attract and retain veterans and retirees. The relocation of these military retirees to a more “tax friendly” state like Pennsylvania, Delaware, North Carolina or New Jersey would jeopardize our state and local economy… If Maryland does not attract military retirees, the state will lose the skills of highly trained service personnel who are essential to economic growth as well as lose considerable tax revenue.”

There are approximately 500,000 veterans in Maryland and the number is increasing at a rate of 1.5 percent a year, especially considering the recent Base Realignment and Closure decisions that are bringing thousands of military personnel to Maryland.

We’d like for these new military residents to stay in Maryland when they retire. They contribute greatly to our economy and quality of life. They have the skills and the knowledge to make great friends, neighbors, employees and members of our communities.

We owe them a debt of gratitude for their service. They have already given so much more than they will ever ask in return and tax relief for these distinguished citizens is the right thing to do. It’s a win-win for everyone.

Kevin Dayhoff writes from Westminster. E-mail him at: kdayhoff@carr.org



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