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Tax Cuts for Seniors That Don't Help Low-Income Seniors

Tax cuts for seniors?  Helping older voters on fixed incomes seems like a good idea to many legislators, but a number of states are passing tax cuts for taxpayers over age 65 regardless of whether the seniors need the help:

  • In Kansas, the state Senate this week debated a bill to exempt Social Security payments from state income tax, costing the state $19 million in tax revenue-- a tax benefit that will not help lower-income seniors and would give the largest benefits to the richest seniors in the highest tax brackets.
  • Last week in Missouri, House Speaker Rod Jetton introduced a similar plan to eliminate state income taxes on Social Security benefits, costing the state an estimated $100 million per year.  Since current law already exempts individuals making less than $27,000 and couples making less than $32,000, the plan would do nothing to help the large number of lower-income seniors.
  • A Georgia referendum last fall eliminated the state property tax for all seniors regardless of income, costing the state $6.8 million for fiscal year 2008.

The problem with these kinds of laws is not just that they help richer seniors while offering little or no help to the poorest seniors who need the most help.  They also ignore demographic realities. As the Georgia Budget and Policy Institute wrote in an analysis of the Georgia law, "the population over 65 will continue to grow...As this population grows, the revenue loss associated with senior citizen tax exemptions will also increase...While certain tax exemptions and preferences are justified, the state should aim to base all exemptions on income, rather than age alone."

Instead of these untargeted senior tax cuts, other states have enacted reforms that provide tax relief for the seniors who need the help most.   As we detailed last July, a number of states use "Circuit Breakers" to limit property taxes to a percentage of income, a reform that targets help to lower-income seniors.  Other alternative reforms are programs that defer payment of property taxes by seniors until property is sold or "homestead exemptions" that exempt part of a home's value from taxes.

So instead of nice sounding tax cuts for seniors, lawmakers should make sure reforms actually give tax relief to the lower-income seniors on fixed income who need the help most.

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