Posted tagged ‘seniors’

Will a higher threshold make the pension tax palatable?

March 9, 2011

It’ll be interesting to see if the proposal in the Legislature to tax pensions continues to draw the political ire of seniors now that the House has set the income threshold at nearly three times higher than originally proposed by Gov. Neil Abercrombie.

Hawai‘i  is one of only 10 states that don’t tax employer-provided pensions, and Abercrombie raised a fair point about whether that should change given the state’s precarious financial situation.

But he set the income threshold way too low at $37,500 for singles and $75,000 for married couples, which would have taken a big chunk out of the anticipated retirement income of middle-class citizens who could ill afford the loss.

The governor also failed to properly index the tax, which would have placed an unfair burden on those who fell just over the limit.

The House removed a lot of the immediate sting by raising the income threshold to $100,000 for singles and $200,000 for marrieds.

Rep. Isaac Choy, an accountant who is respected for his facility with numbers, estimated the tax will apply at this point to only 3,000 high-income taxpayers who can afford it, and the rest will have 15 to 20 years to prepare before inflation pulls them into the grip of the tax.

What remains to be seen as the measure moves to the Senate is whether nervous retirees and those soon to retire — a politically potent bunch — will be relieved by the reprieve or if they’ll continue to view any new tax on pension income as an ominous threat.


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