Arizona Senate Lawmakers Support Plan To Exempt Veteran Pensions From State Taxes, Concerns Raised On Both Sides

By Claire Caulfield
Howard Fischer, Capitol Media Services
Published: Wednesday, February 27, 2019 - 9:18am
Updated: Wednesday, February 27, 2019 - 9:20am

An Arizona Senate panel voted Tuesday to exempt retired veterans from having to pay state income taxes on their pensions.

But it faces an uncertain future amid opposition from some lawmakers of both parties who question why all veterans, including retired general officers with higher benefits, should get such a break.

Currently up to $3,500 of a veteran's pension is exempt from state income taxes. Senate Bill 1157, proposed by Sen. David Gowan from Sierra Vista, would remove the cap entirely.

A Break For Veterans

Sen. Sonny Borrelli from Havasu City, who retired from the Marine Corps as a gunnery sergeant, said the average pension for an enlistee like himself after 20 years is about $20,000.

Under the bill, that would translate out to about a $600 break in taxes.

But Borrelli said that among those in the officer corps, pensions tend to average out at twice as much. That got the attention of Sen. Lela Alston from Phoenix.

"I just do not feel that particularly that someone who's getting a $40,000-a-year pension needs this,'' she said.

And she said the bill would remove revenue from the state at a time when they’re looking to increase teacher salaries.

The state has not yet estimated how much tax revenue would be lost if this measure is signed into law. But at Tuesday’s hearing, Sen. Lisa Otondo from Yuma said she believes a similar proposal several years ago had a $49 million price tag.

But proponents said the measure could help boost the overall economy, which in turn could boost state revenue.

"We have lots of high-dollar jobs that remain unfilled,'' Darcy Mentone representing the Greater Vail Area Chamber of Commerce, told lawmakers.

"[Veterans are] often about 40 years old, they are in their prime workforce years, they're highly qualified, they're exceptional employees,'' Mentone said. "But they're leaving the state.''

The 7-2 vote by the Appropriations Committee sends the measure to the full Senate.

A Similar Measure

A stripped-down bill on the same topic also sparked debate in the House Republican Caucus Tuesday.

While the senate bill would remove the cap altogether, House Bill 2011 would just increase the cap from $3,500 to $10,000.

The estimate is that this would reduce state revenues by about $15 million.

Rep. Walt Blackman from Snowflake said he would prefer to focus the financial relief at those in the most need.

"The lower enlisted that retire out of the military are struggling financially,'' he said. "A lot of them want to come home to Arizona and cannot because they can't afford it.''

Rep. Travis Grantham from Gilbert said he worries that Arizona may be creating a welfare state for some retired veterans.

"When you're about to retire from the military, they take you in a room and they spend three days telling you how to file for unemployment or up your disability benefit,'' he said. "It's disgusting.''

And Grantham said he knows some veterans who retire at age 38 after putting in their 20 years.

"Yes, what they did was heroic, yes you should be rewarded for that service,'' he said. But Grantham said he can't support an across-the-board tax break for retired military.

Rep. John Allen from Scottsdale expressed similar sentiments about carving out a tax break solely for retired military.

"I could find you five other groups of worthy people that we would love to have them live here,'' he said.

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