Legislators in Missouri, Kansas, and Georgia are debating reducing taxes on seniors in their state. Lawmakers in Missouri and Kansas introduced legislation that would eliminate income taxes on Social Security benefits. On the surface, eliminating taxes on Social Security sounds like a wonderful idea. However, only a handful of states levy a tax on Social Security benefits and the Social Security Administration estimates that nationally about a third of current beneficiaries pay federal taxes on their benefits. Those who stand to gain the most from these proposals are better off seniors.
An ITEP analysis of the Missouri bill found that 72 percent of Missourians would receive no benefit from the proposal. Also, the bill carries a price tag of $100 million and the cost is likely to increase as Missourians age. For more on the Missouri proposal read the testimony presented by ITEP staff to the Missouri House of Representatives' Tax Reform Committee.
The Peach State already exempts Social Security benefits from their income tax and offers generous retirement income exclusions (totaling $35,000 of retirement income in 2009). But recently Governor Purdue introduced legislation that would completely eliminate tax on retirement income for Georgians 65 and over. Instead of turning to these poorly targeted tax cuts, legislators would do better to provide tax relief to those state residents with the least ability to pay - regardless of age considerations.