July 06, 2007 12:21 am
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The Associated Press
JEFFERSON CITY, Mo. — Missourians will be getting a tax cut on their Social Security benefits.
Gov. Matt Blunt signed legislation Thursday gradually exempting most Social Security benefits from state income taxes, starting this year and being phased in through 2012.
The legislation contains a similar tax break for some people who opted out of Social Security for their pension systems, including teachers, firefighters, police officers, military personnel, federal employees and railroad workers.
Once it’s fully phased in, the tax cut is estimated to cost the state $154 million annually. Legislative researchers project it to cost the state $27 million this year.
The legislation was a top priority for Blunt and House Speaker Rod Jetton, R-Marble Hill, who were touring the state together for bill signing ceremonies at several senior centers and a state tax office.
Jetton said Missouri was one of 15 states that collects income tax on Social Security benefits. Blunt called the tax an injustice.
“I think taxing Social Security is bad policy; it penalized decades of work and investment,” Blunt told about 40 people at the Don Bosco Senior Center in Kansas City.
“Social Security was created to help guard against the inevitable hazards of age and to insure that growing older does not necessarily mean growing poor in the United States,” Blunt said. “It was not created to be a revenue source for Missouri state government.”
Some Missourians already paid no taxes on Social Security benefits. The previous exemption applied to those whose income, minus half of their total Social Security entitlement, was less than $25,000 for an individual or $32,000 for a couple.
The new law raises those income exemptions to $85,000 for individuals and $100,000 for couples. Those whose income is above the new levels still will get a tax break, because their Social Security benefits will be taxed based on how much their income exceeds the $85,000 or $100,000 caps.
For example, a couple who earns $120,000 would pay taxes on $20,000 of their Social Security benefits, far less than that couple would have paid under the previous system. A couple who earns $70,000 would pay no taxes on their benefits.
By eliminating or reducing the tax on Social Security benefits, “we were able to make Missouri a retiree friendly state,” Jetton said in a written statement.
Josephine Palazzo, who gets a pension from her job on the Jackson County election board, said she saved money for retirement, so she isn’t dependent on Social Security checks. But she welcomed the extra money from the tax cut.
“It’s a wonderful thing,” said Palazzo, of Kansas City. “It’s not going to be a whole lot, but every little bit helps.”
Although the Social Security tax breaks will mean less money for the state, another section of the bill should generate more taxes.
The bill eliminates an income tax deduction for those who work in Missouri but live elsewhere. People who pay property taxes in another state have been allowed to deduct that from the income tax they pay in Missouri — just like Missourians are allowed to deduct their in-state property taxes from their income taxes.
Legislative researchers estimate the tax increase could bring in $11 million annually, most of it coming from residents of the neighboring states of Kansas, Nebraska, Iowa, Illinois, Kentucky, Tennessee, Arkansas and Oklahoma.
Blunt, who has opposed tax increases, defended the measure by noting it affects residents of other states.
“I’m the governor of Missouri. We’re not raising taxes on Missourians,” Blunt said.
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