Thursday, August 17, 2006

Tax cuts only good if they help the rich?

We've been hearing the sad stories for years about the business execs who spent their careers and made their fortunes in Wisconsin but retired and moved to some tax haven like Florida or Texas because of Wisconsin taxes.

Well, guess what? That's all a bunch of hooey. And that's putting it politely.

The right-wing Wisconsin Policy Research Institute probably backed into that conclusion. Its usual bias is to argue for tax cuts on general principle. But a study just released was out of character. It said cutting taxes on Social Security was a mistake, or at least not productive. You know why? Because it mostly helps people who aren't rich.

The Journal Sentinel reports:
Wisconsin loses relatively few wealthy retirees to other states, and changing income tax laws to attempt to keep them is a bad, costly idea, according to a study to be released today by the Wisconsin Policy Research Institute.

While some states exempt all or part of Social Security and pension income from taxation, Wisconsin has traditionally provided only modest breaks in that regard. Illinois, on the other hand, has no state tax on retirement income.

Yet from 1995 to 2000, 3,017 more people ages 65 and over moved from Illinois to Wisconsin than went the other way, according to the report, which was written by Sammis White, director of the Center for Workforce Development at the University of Wisconsin-Milwaukee.
White has been a dependable researcher who always finds the answer the funders are looking for. The answer this time:
Affluent retirees, the kind whom states want to attract, get a smaller percentage of their income from Social Security and pensions than do poorer ones, the report says. Thus exempting pensions and Social Security income from state taxation is more likely to appeal to poorer retirees than to richer ones.

... [F]rom 1995 to 2000, Wisconsin had a net annual loss to all states of only 806 people 55 and older with incomes of more than $75,000.
Eight hundred in five years isn't exactly a catastrophe.

Here's the troubling part.
The report does not mention that Wisconsin will begin to exempt Social Security from its income tax in 2008, at a cost of about $100 million annually, according to a report from the state Department of Administration released Tuesday.

But it does question the wisdom of such a move.
Because, as cited above, that doesn't help rich retirees enough to make a difference.

OK, but what about retirees who aren't rich? What about people whose Social Security benefits are all they have to live on -- people on what is euphemistically called a "fixed income?" The people choosing between whether to go hungry or go without their prescription drugs.

I'd like to think that's who the legislature and the governor had in mind when they passed the Social Security exemption as part of the budget a year ago.

Those are the people who can't afford to flee the state. They can barely afford to take the bus to the grocery store.

And they are the reason it makes sense to exempt Social Security from income taxes, whether it matters to one rich retiree or not.


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