The Case for Exempting Military Retired Pay from Taxation in the State of Maryland.

1
Maryland Retired Veterans Task Force

• The Case for Exempting Military Retired Pay from
  Taxation in the State of Maryland.

2
Maryland Retired Veterans Task ForceRepresenting
26 Veterans Organizations Including

• The American Legion
• Veterans of Foreign Wars
• Disabled American Veterans of America
• The Retired Enlisted Association
• Air Force Sergeants Association
• Military Officers Association of AmericaMilitary
  Order of the Purple Heart
• Joint Veterans Committee of Maryland
• and others for a total of 26

3
Background

• There are over 512,000 veterans in Maryland
• Approximately one in three citizens are members
  of a veterans family
• There are over 42,000 retired veterans
• Seventy one percent (71) of retirees are
  enlisted veterans.

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Background Continued

• Most retirees have (or had) a security clearance.
• Most retirees will bring twenty or more years of
  experience in such diverse fields as computer
  programming and Bio/Tech engineering, etc.
• A military retiree will not put a burden on State
  health facilities.
• A military retiree will not put a burden on State
  education facilities.

5
Analysis

• The gross income that Retired Military Service
  Personnel (RMSP) bring to Maryland is
  3,500,000,000 plus.
• The Gross State Income Tax (SIT) paid by RMSP was
  168,882,098.
• The Real Estate Tax Paid was 59,119,277.
• Sales tax and others 25,000,000. For a total of
  253,001,375.

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Analysis (Continued)

• In Fiscal Year 2002, the Defense Department
  contracted with and paid the Johns Hopkins
  University, Uniformed Services Family Health
  Plan, more than 89 million to provide health
  care to the families of retired and active duty
  service members.
• Data on similar Department of Defense
  expenditures for RMSP under the various TRICARE
  programs was not available, but is estimated to
  be in the hundreds of millions of dollars.
  (Department of Defense TRICARE Management
  Activity)

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Analysis Continued

• Individual taxes paid by an RMSP
• State Income Tax on Retirement Income 1,370
• State Income Tax on Second Income 4,888
• Real EState Tax 1,389
  
• Sales and Misc Tax 587
• Total taxes paid by RMSP 8,233

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Analysis Continued

• Exempting the 1,370 in State Income Tax now
  imposed on the military retired pay of each RMSP
  would yield 6,863 in total taxes for each RMSP
  attracted or retained in the State of Maryland.

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Analysis Continued

• This indicates that in order to make the Bill
  tax neutral, Maryland needs to attract one in six
  RMSP who would normally leave Maryland.
• Give up 1370 to attract 6,863

6,863
10
Attractiveness of Neighboring States

• To illustrate how insensitive Maryland tax policy
  is compared to some neighboring States, the
  following examples are provided, using 2001
  data
• In New Jersey, 307 million or 100 of military
  retired pay was exempt from State income tax.
• In Pennsylvania, 677 million or 100 of military
  retired pay was exempt from State income tax.
• In Maryland, a paltry 11 million out of 846
  million or about 1.3 of military retired pay was
  exempt from State income tax.

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The Question?
Is this an indication that military retirees in
Maryland have contributed less to their State and
this Nation than military retirees in neighboring
States? "Absolutely not, but Maryland's tax
treatment of RMSP suggests that Maryland believes
otherwise.
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Retention/Loss by State
13
Maryland Loss

• Maryland has lost elderly people to other States
  since the 1970s, but that trend has slowed. Most
  of the growth in retirement areas such as
  Worcester County is fed by relocations from
  elsewhere in Maryland.

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The Task Force Conclusion was
The State income tax base and tax revenues will
be enhanced if legislation is enacted to exempt
military retirement pay from State and local
income taxes, thereby attracting more RMSP to
reside in Maryland.