Des Moines Register
02/06/06
Seniors waver over tax break
By JENNIFER JACOBS AND THOMAS BEAUMONT
REGISTER STAFF WRITERS
A 77-year-old widow, Gigi Stokes said she's uncomfortable with the proposal to
do away with all state taxes on retirement income.
"I just plain hate the idea," said Stokes, a registered Republican who said some
of her peers feel the same way.
The Republican-controlled Iowa House, in hopes of keeping more seniors in
Iowa, voted last week to phase out over five years the state income tax on
pension and Social Security benefits for people 55 years and older. The state
revenue loss — and savings to Iowa retirees — is estimated to top $200 million if
fully implemented.
Stokes said she has lived in her Urbandale home for 45 years and isn't planning
to move, much less leave the state.
"We all think, 'Sure, it would be nice to have some more money,' " said Stokes, a
40-year Avon cosmetics representative. "But what other programs — education,
health care — will pay for something we don't really need?"
Support and opposition for the proposal among older Iowans crosses party lines.
"That's money people have made and worked hard for," said Harold Kemp, 64, a
retired Des Moines delivery driver and a Democrat who favors the tax break. "It
think it's wrong to tax it."
But several scholars threw cold water on the proposal, arguing that Census data
prove that few Iowans decide where to live based on taxes.
Doubt is springing from another, unexpected source: AARP.
"We have not seen any hard data that this is a reason why people are leaving or
why they might stay," said Bruce Koeppl, director of AARP Iowa, the large
lobbying organization for seniors. "We're taking a look at it. We're still talking to
our policy experts to try to understand it and think it through so we can take a
responsible position."
AARP's uncertainty surprised Rep. Jamie Van Fossen, a Republican from
Davenport who is chairman of the House Ways and Means Committee, which
considers tax policy.
Van Fossen said the tax cuts aren't only meant to prevent older Iowans from
leaving the state but also to benefit those who always intended to stay.
"Not only is it the right thing to do, it's the fair thing to do," he said. "This helps
cops and firefighters and health care workers and people who have invested in
their 401(k)s. To me it adds up to good policy."
Bill Cram, 79, a Democrat from Des Moines, said he loves the proposal.
"Oh, boy, I've been working on it for about 10 years," said Cram, who is retired
from the U.S. Postal Service. "We're losing retirees to other states that don't tax
pensions and believe me, we are losing them. And they take everything with
them: their bank accounts, the money they spend on cost of living, hours spent
volunteering. It's a big loss to the state of Iowa. We've got to stop this exodus."
But several experts on taxes and economic policy say Iowa's senior exodus is a
myth.
The state Department of Revenue looked at three years' worth of Iowa tax
returns from seniors who left the state.
The nonpartisan Legislative Services Agency examined Internal Revenue
Service data on the state-to-state migration of Iowans of all ages.
And Peter Fisher, a University of Iowa economics professor, said he looked at
the big picture, at the request of the House Democrats.
"All three of us came to pretty much the same conclusion: There is no evidence
that taxes are causing a significant number of elderly to leave the state," Fisher
said.
Most older Iowans stay put, and the majority who leave are motivated by reasons
not related to taxes, he said.
About 15,700 Iowans ages 65 and older left the state between 1995 and 2000,
Census data show. Of those, about 5,000 migrated to one of the 12 states that
either have no income tax or exempt all pension and Social Security income.
Several older Iowans said they base decisions about where to live on weather,
family connections, health care availability, recreational opportunities, safe
communities and educational opportunities, along with taxes.
Eight years ago, Muscatine residents Ken and Evie Gregersen asked their
accountant to compare Iowa auto insurance rates, property taxes, sales taxes,
income taxes on their investments, and other cost-of-living factors with those of
Arizona.
Arizona had a slight advantage, and the Gregersens said they now have a
beautiful view of the Superstition Mountains from the foothills in Gold Canyon,
Ariz., where it has been a dry 70 degrees lately.
As for the new tax break proposal, "I don't know whether that would've been
enough or not," Ken Gregersen said. "We thought my wife's health would be
better in a warmer place."
Lawmakers said the proposal was driven by anecdotes of residents of the Quad
Cities fleeing, or at least threatening to flee, to the Illinois side of the Iowa border,
or Sioux City residents moving over to South Dakota.
An amendment by Democrats that was added to the Republican proposal would
eliminate all state income taxes for people ages 65 and older making less than
$36,000 for single filers or $48,000 for joint filers. Estimates on revenue loss
were not available Friday.
Mary Jane Odell, 82, who was secretary of state during the Republican
administration of former Gov. Robert Ray, said she opposes the amendment. "I
never made that big a salary in my life," she said. "You tax according to how
much a person makes. It doesn't matter if you're 82 or 22."
David Swenson, an Iowa State University economist, said most older Iowans
have low taxes because their incomes are low. "This isn't about the needy
elderly," Swenson said. "This is about the well-to-do elderly."
"Indeed," said Brian Kaskie, an assistant professor in health management and
policy at the University of Iowa, "the Iowans at greatest risk financially probably
do not have pensions to begin with."
Iowa's population is aging faster than most states, and its demand for senior
services is increasing, said Kurt Thurmaier, an Iowa State University political
economist.
The state budget cannot simultaneously help the seniors lawmakers hope to
retain and take care of them if leaders eliminate taxes on retirement income,
Thurmaier said.
Mark Haverland, director of the Iowa Department of Elder Affairs, said he's been
pleading for $3 million for a program that helps older Iowans who want to stay in
their homes and communities rather than move into nursing facilities.
"We're over here kind of wishing we had a few crumbs off the table and they're
giving away the larder," Haverland said.
Gov. Tom Vilsack, a Democrat, said he would oppose the measure if it did not
include a corresponding way to recoup revenue that would be lost as a result of
the tax cuts.
"To the extent that it comes at the expense of support for better schools, access
to health care for seniors, public safety and homeland security . . . then really I
don't know that it's good policy," he said. "That's why I think it's important to have
an offsetting mechanism so that we're not putting schools, public safety and
health care in jeopardy."
While the version that passed in the House did not address lost revenue, Vilsack
said he expected the Senate to explore attaching alternative revenue provisions.