Tax reduction for Kansas retirement income and social security proposed
Republican Gov. Derek Schmidt announced a “tax-free retirement” plan to cut taxes on retirement income after House GOP management effectively killed similar proposals.
Schmidt said he wants to focus on cultivating Kansas.
“If we want to do that, we can not continue to lose retirees at such a high rate to other, more tax-friendly states,” he said in a statement. “To any retiree who is considering leaving Kansas after a lifetime of working and living here, we want you to stay. To any retiree in another state who wishes to relocate, come to Kansas.”
Kansas currently taxes income from IRAs and 401 (k) schemes, off-state public pensions, and social security benefits. Military, federal governments and public pensions in the state are already exempt.
Schmidt rolled out the policy proposal Wednesday to remove state taxes on all pension income, but the idea is not new.
“We’ve passed it at least twice in the Senate, both removing it on social security and removing it on retirement accounts,” said Senator Caryn Tyson, R-Parker. “And the house, when we negotiated, the management of the house would not accept the position.”
A proposal to completely remove tax on pension income was adopted by the Senate in 2021 as part of a major tax relief package, but SB 22 died in a house committee in the spring. This legislative session, a small pension income tax reduction in HB 2597 the package was killed by the management of the GOP House.
Tyson, who chairs the Senate Tax Committee, is running for treasurer. She said she never found out why the house management would not support the tax cut.
“I know I fought hard for it,” she said. “For me, it’s not about politics. It’s about politics, the best policy for the state of Kansas. With the increased taxes being levied in Kansas, we can definitely afford this legislation.”
Democratic Gov. Laura Kelly’s campaign did not seem receptive to Schmidt’s proposal.
“Like a typical politician, Derek Schmidt will say or do anything during an election year, but his real record shows he will take us back to the Brownback era of fiscal irresponsibility and underfunded schools,” the campaign spokesman said. Lauren Fitzgerald. a declaration.
That final report from the Governors’ Council on tax reform did not include tax cuts on pension income among its recommendations. The 174-page report, released in April, suggested studying why the population is growing more slowly than neighboring states.
More:How is Kansas’ economy? You will see a wide range of ratings in governor ads
Derek Schmidt’s tax cut plan
Schmidt’s campaign markets the political stance as a way to stem the flow of people moving out of Kansas. They cited moving company studies and data from the U.S. Census Bureau that show Kansas ranks poorly for outbound migration.
About 21% of the people who moved out of Kansas in 2021 left primarily because of retirement, a United Van Line study found.
“Retiring retirees are a major cause of this emigration,” the Schmidt campaign said in a press release. “Nationwide, retirement is the third most common reason for moving away from a state, and that trend is accelerating. Kansans are increasingly likely to leave upon retirement – taking a lifetime of accumulated talent and wealth with them.”
Kiplinger’s, the magazine on personal finance, ranked Kansas as third least tax-friendly state for pensioners.
“Even though there is no place like home, I would not be surprised to hear that Dorothy (and ToTo too) fled Kansas when she withdrew to avoid the state’s high taxes,” Kiplinger’s story said.
Kansas is one of 13, to tax social benefitsaccording to AIG Retirement Services.
“To have a brighter future, Kansas needs to grow,” Schmidt said. “The ability to retire tax-free in Kansas will grow Kansas and add to the citizens’ capital of our communities. Our state’s heavy tax burden is one of the major barriers to population growth and a major reason why so many retirees in Kansas are moving away. and take with them their lifetime of talent, citizen involvement and savings. “
Derek Schmidt proposes greater tax cuts than recent legislation
The most recent legislative act to lower the tax on pension income came in HB 2597.
The bill was a gut-and-go of what was originally a bill on special wildlife and park number plates. Legislators about a dozen tax proposals into it during the spring conference committee meetings.
A provision in the bill would have extended the existing income tax exemption on social security benefits, which is currently $ 75,000 in federally adjusted gross income. The bill would have created a phasing out with a threshold of $ 85,000, with this amount increasing to $ 5,000 per year.
If enacted, the so-called Social Security Cliff progressive phasing out was projected by legislators to reduce state revenue by about $ 21 million over three fiscal years.
Another provision in the bill would have created a subtraction change that exempts up to $ 2,000 for an individual or $ 4,000 for joint applicants of pension plan income. The exemption would increase via an annual cost of living adjustment.
The change in retirement income deductions would have reduced tax revenue by about $ 76 million over three years.
More:Here’s why Laura Kelly and Derek Schmidt claim political gains from the Kansas Legislative Session
Schmidt’s plan to remove the state income tax on pension benefits and savings would be more expensive than what lawmakers had pushed for in HB 2597.
According to estimates provided by the Schmidt campaign, exemption from all social security income from state taxes would reduce state revenue by about $ 254 million over the next three fiscal years. Meanwhile, a full exemption for all private pension income would cost $ 540 million.
The campaign said: “Schmidt would work closely with the Legislative Assembly to determine a fiscally responsible approach.”
“I’m glad Derek Schmidt is willing to take a lead on this and be ahead,” Tyson said. “We have to help Kansans with all sorts of options. With the way inflation rises and the treasury keeps growing, we have to put the money back in Kansas taxpayers’ pockets.”
The tax cut died when Republican leaders split over the issue
Schmidt’s tax cut comes a month after lawmakers left Topeka without passing HB 2597 and almost two months after he discouraged further tax cuts this year.
“It’s a very comprehensive fiscal package,” Schmidt said in late April about legislation already passed, “and will probably come back at 11 o’clock and try to get an idea more from which faction may not be. the most careful thing to do. “
The Schmidt campaign said he was not involved in legislative efforts on HB 2597.
Earlier this week, The House’s GOP management rejected an agreement made by House and Senate negotiators who included the tax breaks on pensions.
Chairman of the House Tax Committee, Representative Adam Smith, R-Weskan, told a Tax Conference committee that he was “made aware that there were some priorities that had been changed” on HB 2597 during the April break of the Legislature.
“What priorities and who changed the priorities, I must ask?” said Tyson.
Smith said the decision was made “in discussion with members of the House and management in Parliament,” but did not mention who gave the directive. He said it was “sad to see many of the other parts go”, but promised “to come into force again next year.”
Late. Gene Suellentrop, R-Wichita, tried to force a vote on HB 2597. This step got stuck in procedural issues as the Senate worked until the early hours of the morning.
Tyson then tried to revive the bill on the last day of the May session. It was adopted unanimously by the Senate, but Parliament had already postponed the year, which made the vote largely symbolic.
More:Kansas Legislature adjourns for year and leaves Topeka after veto violations and pending cases
Jason Tidd is a statehouse reporter for Topeka Capital-Journal. He can be contacted by email at [email protected] Follow him on Twitter @Jason_Tidd.