By JOHN HOFHEIMER
Leader senior staff writer
In an attempt to retain or attract military veterans to Arkansas, state Sen. Jane English (R-North Little Rock) and Rep. Bob Johnson, (D-Jacksonville) have filed a bill exempting military retirement pay from state income taxes. A similar move failed to get out of committee in 2015, according to English, but passage this year could make the state more competitive.
State Sen. Charlene Fite, (R-Van Buren), state Sen. Missy Irvin (R-Mountain View) and state Rep. Scott Baltz (D-Pocahontas) are sponsoring HB1003 toward the same ends.
Currently, veterans are eligible for the same $6,000 exemption as other retirees.
Arkansas veterans can essentially give themselves a raise by moving to one of the 48 other states—including contiguous states—where their military retirement pay is not subject to state tax. But neighboring states like Louisiana, Texas, Mississippi, Missouri and Tennessee don’t tax military retirement pay at all.
In fact, New Hampshire and Oregon are the only other states where military retirement is taxed, according to retired Col. Don Berry of the Arkansas Veterans Coalition.
The first year of the veterans retirement pay tax cut would decrease state revenues by $10 million, according to Don K. Berry, who lives in Sherwood. But the estimated population of 25,000 military retirees in Arkansas should begin increasing by about 1 percent, or 250 retiree families per year, according to Berry.
Growth would be from Arkansans returning home from their final assignments in 16 countries and 48 other states, from non-residents from Little Rock Air Force Base who choose to stay in Arkansas and from other retiring military families from other states who see the economic value to their family of being part of a stronger Arkansas workforce, Berry explained.
Throughout the region, excluding Arkansas, the military retiree population has increased by an average of about 1.3 percent, while Arkansas’ military retiree population growth has been flat since 2009. At a conservative 1 percent increase, the fourth year would be the break-even point from a tax perspective, he said.
If the projected 1 percent annual veteran population growth holds, the estimated increase to the Arkansas economy over a 40-year lifetime would be an estimated new $500 million or $12.5 million every year.
The current tax proceeds of about $10 million will not go up going into the future as retirees leave or die, according to Berry. “Conversely, with the new retiree growth-driven revenue stream in year 10 new general tax proceeds of $26 million or two-and-a-half times current tax revenue can be projected.”
ON TAX COMMITTEE
“This is something I worked hard last year to get through committee,” Johnson said. “I got on the Tax and Revenue Committee this time to help get the bill through.”
“I’m the lead House sponsor for this bill, and Jane English is the lead in the Senate,” Johnson said. Little Rock Air Force Base is in English’s and Johnson’s districts.
In 2015, efforts to pass that tax cut were overwhelmed by the new governor’s tax-cut initiative, Johnson said.
Johnson said some people look at the bill as a $10 million tax and revenue cut. “But it’s not,” he said. “It’s an economic development bill.”
“I’ve been working on this since I first went into the House,” said English, “How to encourage those who are retiring to make this their home. “
She said it would be good for economic development.
ECONOMIC IMPACT IN MILLIONS
The economic development impact of Little Rock Air Force Base is about $800 million a year and the economic impact of retaining and attracting military retirees across the state could be about the same.
These are people who don’t need health care, social services or unemployment benefits, and they have retirement checks to spend in their communities and 20 years worth of skills available for hire, English said.
English said some people were retiring with 20 years in the service, when they are 38 or 40 years old, with long, taxable careers ahead of them.
“They would put more money into the state,”she said.
The bill is pre-filed and ready to start the process toward passage when the three- or four-month session of the General Assembly begins Jan. 9, English said.
Johnson said by encouraging veterans to retire or move on to a retirement career in Arkansas, after a few years additional revenues would be generated after about four years.
Their experience would be a valued addition to the state’s workforce, Johnson said.
“We already exempt active duty pay,” Johnson said. “You haven’t been paying state income tax, you retire and now you’re going to have to pay income tax. The exemption would continue to the spouse when the retired military member died,” he said.
The tax break would apply to retirees and those who receive survivor benefits as beneficiary of a uniformed services survivor benefit plan
“Uniformed services” includes the Army, the Marine Corps, the Navy, the Air Force, the Coast Guard, the Public Health Service commissioned corps or the National Oceanic and Atmospheric Administration commissioned Officers Corps, the federal reserve component of any of those and the National Guard of any state.
“We’re not trying to select a group just to give a tax break,” said Johnson, who is a CPA. “I lose clients who retire and move to a state like Texas or Missouri when they retire.”
