Are our government officials still considering passing a law that will eliminate federal income tax on retiree pay?

MSgt Kathy Jones — Thu, 20 Oct 2022 00:02:59 -0400

Many states were considering same regarding state tax. What are chances of either happening?

Response by COL Randall C. made Oct 20 at 2022 9:37 AM

COL Randall C. — Thu, 20 Oct 2022 09:37:41 -0400

I would say that it would be near zero.

In 2020, DFAS paid $20.8 billion dollars in retirement pay. Considering that the net average tax rate in the US is 22.6%, that means the government would be leaving $4.7 billon dollars of revenue out of it's coffers.

Additionally, the special interest groups will be lined up asking for their pensions to be tax exempt. Where do you draw the line? After all, first responders put their life on the line often .. what about logging workers (highest death rate in the US of all professions) ... etc.

Response by CPT Private RallyPoint Member made Oct 21 at 2022 12:24 PM

CPT Private RallyPoint Member — Fri, 21 Oct 2022 12:24:04 -0400

Depends on who wants to buy those votes and who wants to stop them. I can see this easily being manipulated.

What is retiree pay?
What are exempt revenue streams?

I will have IRA streams, 401K streams, and then regular investment portfolio streams. Then I'm incented to draw from the tax sheltered streams first.

I personally see a huge variation in retirement incentive savings, and depending how one's income is earned changes how much one can save in a tax shelter. It shouldn't be gamed like that. All SSN's should have the same limitations regardless of source, but perhaps limits defined by adjusted income on the tax return. The AMOUNT as the limiter not the SOURCE.

Anyway........... the tax system is overly complicated, and every time a major change happens the 2nd and 3rd order effects are hard to forecast and have huge effects that may sway too far from the intended outcome. Take too much, kill the economy, take too little drive up debt.