Michael Gouzie has always wanted to retire in Connecticut and was excited last spring when he learned that state officials had expanded the state’s retirement and income tax exemption.

But the former defense engineer wasn’t too happy when he learned that the couple would make zero profit from the change – despite only making a few dollars more than the $100,000.

That sharp funding gap reverses a program that, instead of encouraging retirees to stay in Connecticut, could push more depressed seniors to warmer states with lower costs of living, Sen. Cathy Osten, D-Sprague.

Osten, which includes several communities in New London County where the defense industry remains strong — and private-sector retirements are still visible — is leading a push to reform the state’s retirement income tax when the General Assembly convenes on Jan. 4.

Sprague’s goal is to eliminate all taxes on retirement. At least, he added, the state must replace the existing “cliff” in the tax law through the process of retirement and age exemption.

“It makes no sense,” Osten said. “If someone earns $75,001 they never make a profit?”

Osten was talking about the decision last spring by Gov. Ned Lamont and the legislature to accelerate the exemption of all pensions and annuities – but only for some. Originally due to take full effect in 2025, the 100% exemption now applies immediately – for singles with incomes of less than $75,000 and couples with less than $100,000.

A retiree with a pension of more than $75,000 — or a couple with one that barely reaches $100,000 — is rarely wealthy, Osten said.

If those pensions were tax-free, those pensions would likely stay in Connecticut, he said.

“I think it’s an economic benefit for the state,” Osten said, “They’re spending more money here. We get more taxes.

Gouzie, 82, has lived in the Gales Ferry area of ​​Ledyard since 1965. He spent 40 years as an electrical engineer, working mostly for the U.S. Department of Defense as a civilian employee.

And while many friends have encouraged him and his wife, Patricia, to leave Connecticut, where their retirement dollars could stretch farther, Gouzie said they still love the southeastern corner of Connecticut.

“Florida? It’s the last place I want to go,” Gouzie said, adding that the couple is content to spend their time in Ledyard, Mystic and Noank. “When I start to understand [past] the Connecticut River and going west, I’m starting to get a little tense.”

But Gouzie noted that Connecticut has taken steps in recent years to make the state more attractive to some retirees, adding that expanding that effort is important.

The law exempts all Social Security benefits for single filers with incomes under $75,000 and joint filers under $100,000. Taxpayers with large incomes are eligible for the 75% exemption.

Connecticut also protects 50% of retirement income for retired teachers and 100% of federal military retirement pay, according to the Tax Expenditure Report.

Saving pensions and annuities is another big step, said Nora Duncan, executive director of Connecticut AARP. But limiting eligibility to $75,000 for singles and $100,000 for couples is too modest in the eyes of many retirees.

“This is probably the thing we hear the most,” Duncan said. “It’s real money for people.”

Even offering a portion of the pension and income to households above the general income limit would go a long way toward keeping retirees here, Duncan said.

“You are not poor, you are not rich, but you have enough money to move,” he said. “What other inducement would you like me to give you to get out of Connecticut? … I don’t want to see another for sale sign in my neighborhood.”

The state’s chief business officer has given Osten’s early approval of the move.

“We strongly support this proposal and we welcome any policy action that helps lower the cost of living in the state,” said CBIA President and CEO Chris DiPentima. “Making Connecticut more competitive means making the state affordable for all residents.”

Osten and Duncan also said that expanding the pension and the annual exemption seem to align with Lamont’s often-stated goal of increasing the tax-paying population. Although these retirees do not pay income taxes, they will pay other taxes.

The state budget office did not take a position this week on the subject. Lamont said he is considering various tax relief options, but it must also be weighed against the state’s long-term fiscal goals.

Connecticut has invested more than $6 billion over the past three years to accelerate the reduction of its long-term pension debt.

Osten said an informal analysis shows that removing all pension and income taxes would cost the state $200 million a year. Lamont’s budget office did not have an exact estimate this week, but spokesman Chris Collibee said officials believe the state could spend hundreds of millions of dollars.

Collibee also noted that the new tax exemption starting soon for individual retirement accounts means the state will collect $78 million less in the 2023-24 fiscal year.

The government’s finances are very tight at the moment, with the government forecasting a budget deficit of $2.8 billion for the fiscal year ending June 30. This equates to approximately 13% of the budget’s General Fund.

But it also means that many tax cut proposals could be competing for the legislature’s attention.

The Rep. Sean Scanlon, D-Guilford, who will become state governor on Jan. 4, has pledged to renew his push for state loans for low- and middle-income families with children – a concept that has been developed. based support.

Scanlon was able to get approval this year for a $250 per child tax cut that sent $82 million to eligible families.

Minority Republicans in the House and Senate are also expected to renew many of the tax cuts they proposed last spring. The GOP has called for a possible cut in Connecticut’s tax rate for the first time since the mid-1990s.

Sen. John Fonfara, D-Hartford, and Rep. Maria Horn, D-Salisbury, who co-chairs the Finance, Revenue and Bonds Committees, both said they expect to have their hands full. But they also say Osten’s proposal has merit.

“The whole idea of [fiscal] gaps in our government — and it’s not just in the tax world — are producing all kinds of bad incentives and bad policies,” Horn said.

Fonfara added that proposals that could create more jobs in the long run would have significant benefits.

“For me, the big one [test] increase the economy,” he said.

Source link