BLOG: Ige Looking to Lock Down Tax-Free Pensions

With government deficits mostly on the rise, subjecting pensions to income tax is becoming a more frequent topic in budget discussions.

A veteran Oahu lawmaker – and gubernatorial hopeful — is looking to take that issue (almost completely) off the table.

Sen. David Ige has introduced Senate Bill 2982, which would let voters decide whether the state’s Constitution should be amended to prevent future legislators from taxing pensions.

“We are trying to provide one more measure of certainty for pensioners,” Ige told Big Island Now.

He and other critics of such efforts say that would penalize retirees who planned on their pension as a major component of a fixed income, and would also discourage retirees from moving to Hawaii.

Pensions are already subject to federal income tax, but Hawaii has so far resisted attempts to use them to boost state revenues.

Gov. Neil Abercrombie proposed doing just that in 2011, although under his plan those on the lower income scales would be exempt.

A version of his proposal passed the state House but was shot down in the Senate.

State tax officials say those opposed to the move are splitting hairs, since the state already taxes individual retirement accounts such as IRA and 401(k) plans, which many employers are moving to embrace.

Ige’s proposal would not change the status of those.

Of course, future Legislatures could always push for a new constitutional amendment that could reverse Ige’s, but with one out of four Hawaii residents over the age of 55, the odds of such a move likely would get slimmer with the passage of time.

According to taxes.about.com, Hawaii is currently among nine states that excuse all federal, military and in-state pensions as well as Social Security benefits from income tax.

It is also among three states – along with Alabama and Illinois — that also exempt virtually all public and private pensions.

Only Pennsylvania and Mississippi exempt all retirement income, including IRA and 401(k) distributions.

Of course, there are seven states which do not impose an income tax, but they usually make up that revenue with steeper property or sales taxes.