A big portion of this devotion originates from the fact that almost everyone, including politicians, has grandparents, great aunts, and uncles. Elected officials, on the other hand, have reason to be concerned about these men and women who have stepped down from active duty. Older individuals have the right to vote.
Voter turnout was highest among those aged 65 to 74, at 76.0 percent, and lowest among those aged 18 to 24, at 51.4 percent, according to the United States Census Bureau. According to the United States Census Bureau, voter turnout in the 2020 elections was highest among those aged 65-74 (76.0 percent) and lowest among those aged 18-24 (36.0 percent) (51.4 percent ).
Recent attempts by states to provide considerable tax relief for retirees have been thwarted. At least seven governors have suggested significant budget reforms to decrease or abolish income taxes on retirement income. These suggestions were made in the purple, red, and blue states.
Is retirement benefits exempt from income tax?
Tax breaks for the elderly are not a new concept. Over the last half-century, states have granted older residents property tax breaks. Twenty-one states prohibit military retirements. In my home state of Virginia, only pensions given to Medal of Honor honorees are exempt. This is a one-of-a-kind group of people. In twelve states, social security income is not taxed. In 14 states, the defined pension income tax is not levied. All retirement income, including 401(k), IRAs, and IRAs, is tax-free in three states.
These tax breaks are not given out for free. Avoiding income taxes is an expensive proposition for many people who receive retirement payouts. Every year, the number of states that offer exemptions grows. Aside from their sympathies for the elderly and their votes, political leaders are drawn to Florida because of the state’s attraction to those on fixed incomes. The state has no income tax regardless of age. Although I understand why lawmakers want to provide retirees with tax breaks, I feel they are bad tax policies.
In essence, the exemption violates all of the foundations of sound tax policy in most states. One such principle is neutrality. This implies that the revenue agency should treat everyone equally. Existing exemptions, as well as those proposed, clearly choose winners and losers in society. For over two centuries, public finance experts have believed that a good tax system is based on a broad base with low rates. In a country with a growing share of seniors, exempting retirement income from tax increases the base while keeping rates higher for everyone else.
Blanket exclusions for all taxing retirement income may also violate fairness standards. Taxes should be the same for people in similar circumstances. It’s tough to see why a 30-year-old should be taxed but not a 70-year-old. Politicians typically defend these exclusions by stating that they aid poor senior Americans. I do not want anyone’s grandmother or anyone else to be homeless.
In contrast, a broad exemption exempts wealthy seniors from paying taxes. Is Warren Buffett’s social security income exempt from taxation? Retired high-ranking military leaders are among the highest-paid consultants. Military pensions should not be taxed. Worse, tens of thousands of former law and accounting partners, as well as corporate leaders, have retirement incomes that place them in the top 1% of Americans.
If retirement income must be exempted, which appears to be the case, the exemption should be means-tested. The income tax system is suitable for providing tax assistance to the poor. If there is concern about retirees living paycheck to paycheck, assistance should be restricted to those who are truly in need.
Conclusion
I recommend that retirement income be excused based on the senior’s non-retirement income. Without breaking the law, you can create an exemption to assist the destitute elderly. While it may not be the best tax policy, it will assist elected politicians in garnering more votes on election day. It is a more favorable tax policy.
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