Should Maryland give a $50M bonus to military retirees?
Surely, most Marylanders can agree that men and women who have served in the U.S. military richly deserve not just the nation’s thanks, but, whenever possible, financial benefits from retirement pay to health care. A lot of seniors deserve pension relief, particularly at a time of heightened inflation. Just last year, the Maryland General Assembly and then-Gov. Larry Hogan approved legislation providing a tax credit to retirees of up to $1,000 per individual and $1,750 per couple. Yet now, lawmakers in Annapolis have been presented by Gov. Wes Moore with a costly proposal, the Keep Our Heroes Home Act, that would further reduce taxes on military pensions — for individuals as young as 37 years old.
The governor’s heart may be in the right place, but his priorities are not. Recently, the legislature’s budget analysts calculated the cost of providing what the governor wants — exempting up to $25,000 in military pension payments from state and local income taxes and then raising it to $40,000 in 2024. It quickly adds up to more than $32 million in lost revenue each year for the state and $21 million for local governments.
Governor Moore has said his goal is to eventually exempt all military pension from state income taxes, which would be more expensive still. The former U.S. Army captain’s reasoning is to make Maryland a more attractive place for military families to live and work. Given the state’s significant military presence from the U.S. Naval Academy and Fort George G. Meade to Aberdeen Proving Ground and Fort Detrick, not to mention its proximity to the Pentagon, there is an undeniable logic here. Do we not want to retain the thousands of veterans and their families after they finish their military service, or should we risk them moving to states that do not tax military pensions? And we might point out that Moore announced this proposal last month as he was contemplating what to do with a $2.5 billion state budget surplus.
Yet there are several potential pitfalls here. First, there’s a question of the government’s true financial picture. Short-term budget surpluses have been nice, but analysts have projected they go away soon enough. Indeed, one of the most important commitments made by the legislature, the $3.8 billion Blueprint for Maryland’s Future school reform plan, is estimated to hit a $1 billion shortfall by Fiscal 2027. Are we going to turn around in several years and raise the income tax as lawmakers did in 2012 (to the detriment of middle class families earning a combined $150,000 or more)? Unlikely. And that’s not even considering the chance of a significant economic downturn in the coming year as interest rate hikes have their effect of slowing down the economy.
Next, there’s the matter of hardship. Just how badly needed is this tax cut? Maryland already provides an income tax exemption of $15,000 for military pensioners over the age of 55 and up to $5,000 for those below. Since those who retired from the U.S. Armed Forces can start collecting pension benefits from the day they leave service, this leads to what is known as “double-dipping,” as pensioners often begin second careers in the public or private sectors thus earning paychecks and pensions at the same time. Good for them. But it means a lot of these individuals who stand to benefit aren’t exactly hurting
now. So where is the best bang for the buck? It’s useful to remember that these same tax dollars could also be used to house the homeless, broaden health care coverage, build schools, reduce gun violence and so forth.
And finally, there’s the political reality of special interest tax cuts. If military pensioners are regarded as a unique group deserving of this privilege, who else might petition lawmakers for similar status? Public school systems are hurting for teachers and school bus drivers. Hospitals are having trouble filling nursing slots. Firefighters would surely love to anticipate a more prosperous retirement, too. The COVID-19 pandemic has produced no shortage of jobs regarded as heroic, but they aren’t paid that way, nor do they have a double-dip opportunity. Expect all to be lining up to get their share of the action.
Democrats in Annapolis will likely want to give their popular new Democratic governor a political victory on an issue of obvious importance to him — even after rejecting similar proposals in the past. No one testified against the measure at its first hearing. And we’re guessing they can make any tax cut bill a bipartisan affair. But we would counsel caution here. Shouldn’t we at least let the ink dry on last year’s five-year,
$1.86 billion tax cut package before Maryland starts giving special treatment to any group of pensioners no matter how valued their service?