The Iowa Fiscal Partnership is urging state lawmakers not to consider giving additional tax breaks to seniors because such policies are costly and poorly targeted.
The partnership points to a new study from the Washington-based Center on Budget and Policy Priorities (CBPP) showing that such tax breaks cost states $27 billion annually – a price tag that will exceed $54 billion by 2030. A large proportion of these benefits go to seniors who are well off and don’t need them, according to the CBPP report.
“Instead of finding new ways to squander important resources for education and other public services that help Iowans of all ages, Iowa needs to find ways to better target the tax breaks it already provides,” Mike Owen, executive director of the Iowa Policy Project, said in a prepared statement.
Currently, Iowa is one of 28 states that exempts 100 percent of Social Security income from taxation, regardless of the retiree’s annual income. Iowa is also among the 26 states that provides a tax exclusion for pension income. That exclusion amounts to $6,000 for singles and $12,000 for couples, according to the partnership.
The CBPP estimated that in 2017, the lost revenues to Iowa resulting from these tax breaks was 9 percent, or $360 million.
“States should reduce this expense by better targeting relief to seniors with low incomes,” the author of the report, CBPP senior analyst Elizabeth McNichol, said.
Overall, Iowa seniors in 2013 had a tax liability that is 60.6 percent of what non-elderly residents paid, according to the CBPP report.
“The CBPP report makes a very important point, that with an aging population and increased needs for services for that population in the future, we should not be undercutting our ability to fund those services by compounding costly and needless tax breaks for seniors, or anyone,” Owen said.
Iowa’s senior population will increase from 15 percent of the total in the year 2000 to 20 percent by 2030, according to the CBPP report.
States would be better off targeting tax breaks to seniors who are truly in need, the CBPP study says. This can be done by limiting senior tax breaks to those below a designated income level, according to the CBPP, or state earned income tax credits can be expanded to seniors. The age eligibility for tax credits going to those over 65 years old could also be raised, the study says.
Many senior tax breaks were put in place decades ago when the number of seniors living in poverty was much higher, according to the report. Indigent seniors represented 25 percent of the population in 1970, the report states, but that figure has been reduced to 9 percent.