Lt. Gov. Anthony G. Brown used the occasion of Veterans Day to announce a five-point “Compact with Veterans” that would include the phase-in of a 100 percent exemption from state income taxes on military retirement income.
Under Brown’s proposal, the state would phase in a 100 percent exemption over eight years beginning with the fiscal year that starts July 1. In a statement from his campaign for governor, Brown estimates the cost of the proposal at $17.5 million by fiscal year 2019.
The exemption would apply to the first $150,000 of retirement income. Currently, there are about 53,000 retired veterans living in the state. The average pension is $27,055, according to a state Department of Legislative Services analysis.
“Several studies have suggested that exempting veterans’ military pension income could actually pay for itself because most veterans work for many years in civilian jobs following retirement from the military,” Brown said in his campaign statement. “If more veterans and their spouses moved to Maryland to take advantage of this benefit, the new civilian income could expand Maryland’s tax base to significantly offset any cost of the exemption on military retirement income. Even if this additional civilian income does not fully offset the program costs, it is the right thing to do. In a budget of more than $35 billion, we can find $17.5 million to honor the service of our veterans.”
The idea of exempting military retirement income in Maryland is not new. In fact the state already allows military retirees to exempt the first $5,000 of their income from state taxes.
Del. Bill Frank, R-Baltimore County, introduced a bill earlier this year that would have phased in a 100 percent exemption for military retirees over five years beginning in the current fiscal year.
“I’m flattered,” Frank said after learning of Brown’s proposal for veterans.
Frank modeled his 2013 bill after a similar one proposed in 2006 by then-Gov. Robert L. Ehrlich Jr., another Republican, that would have exempted 50 percent of a veteran’s retirement income.
An analysis of Frank’s bill, which is linked to in the Brown announcement, sets the price tag for the full implementation of Frank’s plan at $70.6 million. That figure includes $43.3 million in tax revenue reductions to the state, plus $27.3 million to local government.
Frank’s bill died in the House Ways and Means Committee. The delegate said he believes the cost of the proposal and the potential to cut taxes in an election year may have played a part.
Brown campaign officials said they believe the income tax exemption will cost no more than Frank’s bill, and they expect it to cost less because of the $150,000 cap on retirement income.
Frank said he does not believe the cap will have much effect on the cost.
“Very few people earn more than $150,000 in retirement income,” Frank said and added that he plans to reintroduce his bill when the new session begins in January.
“I’m in full support of this and look forward to working in a bipartisan fashion to pass this legislation,” Frank said. “Let’s get it done in 2014.”
Other components of Brown’s compact with military veterans include:
(bullet) Creation of a veterans hiring program that would challenge Maryland businesses to hire 10,000 military veterans or spouses by the end of 2018. The program would combine three existing sites used to help connect veterans to jobs. The cost is estimated to be $250,000 a year. Brown said he would “call on responsible corporate partners in the state of Maryland to help pay for the cost of these programs.”
(bullet) Establishing a bridge loan program for veterans waiting for disability claims to be processed. Brown’s campaign estimated startup costs of $2.5 million in the first year and an ongoing $1 million annual expense.
(bullet) Creation of a Maryland veterans treatment court to connect veterans with substance abuse and mental health treatment services as an alternative to incarceration. The campaign estimates an initial cost of $300,000 that grows to $450,000 as additional courts are created around the state.
(bullet) Expanding the state’s Rental Housing Works program by $5 million and requiring that at least 20 percent be earmarked for housing veterans.
Brown’s campaign estimates the cost of his proposals at $8.85 million for the fiscal 2016 budget, growing to $24.2 million in fiscal 2019.