Many conservatives like to say that, when it comes to promoting economic growth, government should not pick winners and losers. But those who favor a special income tax exemption for military retirees in South Carolina are doing just that.
Gov. Nikki Haley’s budget proposal for 2016-2017 includes a one-year, $9.8 million tax cut for military retirees as an incentive for more of them to move to the state. This is the first cut in a proposed three-year phase-in that, when finalized, would cost the state $33 million a year.
The proposal passed unanimously in the S.C. House last year but went nowhere in the Senate. Supporters will lobby senators again this session to pass the measure.
Haley argues that attracting military retirees in their mid-40s and 50s to the state would produce a valuable talent pool. She argues that the state would benefit from income produced by the retirees’ second jobs, their economic activity, including purchases of homes, autos and other big-ticket items, and income from spouses and other family members.
Within a decade, supporters assert, the benefits would outpace the initial costs of the tax cut.
Eighteen other states offer full state income tax exemptions for military retirement money. Another 16 states offer a partial exemption.
But while that benefit might be a reason retirees choose to move to one state or another, we doubt it is the only one. Military retirees, like others in that age group, have to consider a variety of factors, including climate, overall cost of living, quality of schools, availability of recreational opportunities, cultural activities and others.
South Carolina already excels in a number of those categories. It is questionable whether offering a costly income tax exemption to one group would significantly enhance retirees’ migration to the state.
Under Haley’s proposal, military retirees would be the winners. The rest of the state’s taxpayers, who would somehow have to make up the lost $33 million annually, would be the losers.
Haley’s proposal to give tax relief to former military personnel comes on the heels of a demand that the Legislature match any increase in the state’s gasoline tax with a cut the state’s top income tax rate to 5 percent from 7 percent over a 10-year period. When fully phased in by 2025, that would deplete state revenues by about $1.4 billion a year, with most of the benefits going to the state’s wealthier taxpayers.
The state Senate is considering a proposal to use $400 million next year in general fund revenues to pay for a fraction of needed road repairs rather than increase the gas tax. How is the state supposed to take care of all its pressing needs, including the mandate to provide equal access to a quality education for all children in the state, if it continually depletes its sources of revenue?
Military retirees undoubtedly are a deserving group who have served their country, often for decades. But one could ask whether other groups might also be deserving of tax breaks – police, firefighters, teachers, rescue workers.
Singling out one group for special tax privileges is a slippery slope.
This military-friendly state already is home to thousands of military retirees. Many of them, we suspect, would be willing to continue to pay taxes like everyone else – especially if it would result in fixing the state’s roads.