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Economy / Taxes

Nicklaus on Retirement Tax Cuts

By Timothy B. Lee on Feb 21, 2007

David Nicklaus has a new column on Speaker Jetton’s proposal to exempt Social Security benefits and various other forms of retirement income from the income tax:
 

f you’re concerned about economic efficiency, this is the wrong kind of tax policy. It’s true that high tax rates make people less motivated to work, save and invest. The best way to stimulate the economy is to cut tax rates, not treat some forms of income differently than others.

Proponents of the senior-citizen tax break have said it will entice retirees to settle in Missouri. That might be true in a few cases. But if we’re trying to entice people to move in, shouldn’t we cut taxes instead on working people and the businesses that employ them?

Sometimes it’s desirable to trade efficiency for other social goals, such as helping the poor. But the senior citizens who would benefit from this tax cut aren’t poor. The Institute for Taxation and Economic Policy estimates that 72 percent of Missouri’s Social Security recipients already pay no tax on their benefits. The benefits of Jetton’s proposal would go overwhelmingly to the wealthiest 3 percent, those earning more than $132,000 a year.

Quite so. I’m always sympathetic to tax cuts, and there are good arguments for Jetton’s proposal. Certainly, I’d rather cut taxes for seniors than have the legislature spend the money. But It’s bad economics for elected officials to be playing favorites, cutting taxes for certain groups while leaving taxes high for others. What this state really needs are broad tax cuts that lighten everyone’s tax burden. Retirees deserve a tax cut, but so do working families and entrepreneurs.

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Timothy B. Lee

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