Democratic leaders in the state Senate say they want to make New Jersey more affordable for seniors living off of pensions and other savings by increasing the amount of retirement income they can exempt from state taxes.
The goal, the Democrats said, is to help more seniors stay in New Jersey instead of being forced to move to other states where taxes on income from a pension, annuity, 401(k) or an IRA are lower.
Details of the proposal are still being worked out, but it could be announced as early as this week. The concept already has support from Republican lawmakers, who last year put forward their own legislation seeking to ease the tax burden on retirees.
“We want to do this sooner than later,” said Senate Budget and Appropriations Committee Chairman Paul Sarlo (D-Bergen). “This is about retirement income. People who have put money aside to plan for their golden years.”
Right now, New Jersey allows residents 62 years of age or older who make under $100,000 annually to exempt up to $15,000 of their retirement income from state income taxes. The exemption is capped at $20,000 for couples in New Jersey.
But the cap is $40,000 in New York, while Pennsylvania does not tax retirement income at all.
The tax policies in those other states offer a real temptation for seniors to leave New Jersey, said Senate Majority Leader Loretta Weinberg (D-Bergen). And states like Florida, which has no income tax at all, become more attractive for seniors who must be concerned about the bottom line.
“It’s about people who are living on fixed incomes (and) because of the way our retirement income is taxed they can live in places like Florida more comfortably,” Weinberg said.
NJ ranks among worst for retirees
New Jersey rates among the worst states for retirees when it comes to tax policies, according to a recent analysis published by Kiplinger, a personal-finance magazine. The relatively low retirement-income tax exemptions were listed along with high property taxes as key factors in in New Jersey’s poor ranking.
Florida, with its lack of an income tax, was rated among the best states for retirees when it comes to tax policies.
The Senate Democrats last week led a roundtable discussion of the retirement-income issue, hearing from experts in the financial industry and those who work with seniors on a regular basis. The State House hearing was part of a broader initiative that’s exploring whether New Jersey could benefit from spending more money in certain key areas of the state’s economy and infrastructure.
“People are leaving and they are leaving their families behind, and that’s a sad thing,” said John Crosby, director of government relations for the Financial Planning Association of New Jersey, during the roundtable.
“I think it’s a real issue. I do think it’s an important discussion,” said Grace Egan, executive director of the New Jersey Foundation for Aging.
The idea of increasing New Jersey’s retirement-income exclusions is not a new one. Two Republicans, state Sen. Tom Kean Jr. and state Joseph Kyrillos, introduced a bill nearly a year ago, and Senate President Stephen Sweeney (D-Gloucester) has also addressed the issue frequently this year.
But discussions have heated up in recent weeks as lawmakers from both parties have been taking a broader look at state tax policies as they try to work out a deal to sustain transportation spending.
The state Transportation Trust Fund is set to run out of money by the middle of next year, with the primary source of revenue for the fund, the state gas tax, producing only enough dollars to pay down the fund’s significant debt. Democrats, who control both the Senate and Assembly, want to raise revenue for new projects by increasing the per-gallon gas tax, which right now is 14.5 cents, the second-lowest among U.S. states.
But any deal on transportation funding must be approved by Gov. Chris Christie, who has turned further to the right this year while seeking the GOP’s 2016 presidential nomination. And he’s been pressing lawmakers to come up with a broader plan that features tax cuts in other areas.
At the conclusion of last week’s roundtable discussion, Sweeney said that no matter what happens next as the transportation-funding debate moves forward, the state’s should still increase the retirement-income tax cap – eventually raising it to as high as $100,000.
“If we phase this in, we can afford it,” he said.
But depending on how much that cap is raised, the state budget could lose more than $100 million in revenue.
Various plans for exempting more income
Sarlo, the budget committee chairman, suggested the goal may simply be to get the cap up above New York’s $40,000 exemption. And he predicted that keeping more seniors from leaving New Jersey would also add revenue to the state budget in the long run.
The the bill introduced last year by Kean Jr. (R-Union) and Kyrillos (R-Monmouth) would increase the tax exemption to $30,000 for couples and $22,500 for individuals. But Kean Jr. said in a phone interview on Friday that he’s in favor of raising ing the exemptions even higher if possible.
“The answer is whatever allows more people to stay in the state of New Jersey,” Kean Jr. said. “What is it that gets New Jersey structurally to be more affordable to people?”
He also cautioned Democrats against thinking that simply lifting the retirement-income exemptions and easing New Jersey’s estate tax — another place where lawmakers seem to have found some consensus in recent weeks — will mean there’s no more work left to do to make living in New Jersey more affordable.
“You’ve got to look at it in the context of larger reforms going forward,” Kean Jr. said, referring to legislation aimed at addressing the state’s high property tax burden, such as ending payouts to public employees for unused sick time. “We have to continue to focus on some of these reforms (as well).”