Sunday, July 25, 2010

Are taxes driving retired veterans out of Minnesota?

In his campaign's quest to pivot from the tip penalty debacle, The Big Red One visited Elk River last week for another "listening session." The purpose of this listening session seems to have been to provide a platform for Emmer to make some serious policy proposals and hopefully to turn the klieg lights of the media away from server wages and toward veterans.

I won't belabor the fact that one of Emmer's two proposals (A Minnesota GI Bill) is already law, was passed 127-7, and that Emmer (and his campaign manager Rep. Mark Buesgens) actually voted against the bill containing the Minnesota GI Bill.
Campaign spokesman Bill Walsh attributed the flub to “bad staff work,” noting that Emmer was reading from an overview of Pawlenty’s proposals. “I didn’t make it clear which things had passed and which things hadn’t passed yet. And obviously he forgot, because he voted on it. So that is a misspeak,” Walsh said.
This is more than sloppy staff work, it's legislative amnesia. I guess when you vote no on everything, those votes just kind of blur together. And as far as being clear about what had passed and hadn't passed, here's Emmer at the Elk River event:
"It's disappointing that we haven't passed at least one of these [Minnesota GI Bill and tax exemption for military pensions] already."
I do want to examine his other proposal, to exempt military pensions from the state income tax. Particularly, I want to take issue with one claim - that Minnesota is driving away military retirees because of high taxes. I've previously criticized Emmer's claims that we are losing the right kind of people because of taxes. As we'll see in a moment, it is no more true to say that taxes are driving away the specific group of military retirees as it is to claim that taxes are causing Minnesota to become a "departure zone."

Here's the relevant section of Emmer's comments starting at about 4:30 in MPR's audio recording of the Elk River appearance.
"We've got to, we don't have a military base in the State of Minnesota, so we have to do whatever we can to attract military servicemen and women, our great veterans back to Minnesota. We have to make Minnesota attractive for what I believe are the most disciplined, well trained business folks we could possibly have in the State of Minnesota. How do we do that? It's by having certain incentives . . ."
At 10:00, Emmer is fielding comments from Ralph Donais, Chairman of the United Veterans Legislative Council of Minnesota. (By the way, if you click through to their website, on the front page is a link for information about the Minnesota GI Bill. Maybe Mr. Donais should have said something to Emmer beforehand.)
Donais: "We're giving up about a half billion dollars a year into the state's economy by taxing the second career military because they're not coming to Minnesota, they're going to other states where there is very low tax or no tax and establishing their household."
Emmer's very interested in this figure, so he asks where Donais gets this figure of a half-billion dollars that Minnesota is losing by taxing military pensioners.
Donais: "It comes from the DOD actuary, anyone can go to that site and get it."
What does the Department of Defense actuary say about Minnesota? How does Minnesota, a state without a military base, compare to the national average when it comes to attracting and keeping military veterans?

The following figures are derived from the DOD Actuary's Statistical Reports from FY 2001 - 2009. They are available as .pdf files at the left side of this page.

Between 2001 - 2009, the total number of U.S. veterans receiving a military pension from the Department of Defense increased from 1,890,985 to 2,022,166, an increase of 10.9%.

Between 2001 - 2009, the total number of Minnesota veterans receiving a military pension from the DOD increased from 15,566 to 17,668, an increase of 13.5%, outpacing the national average.

Between 2001 - 2009, monthly DOD military pension payments to U.S. veterans rose from just over $2.7 billion to $3.85 billion, an increase of 42.5%.

Between 2001 - 2009, monthly DOD military pension payments to Minnesota veterans rose from nearly $17.6 million to just over $26.1 million, an increase of 48.6%, outpacing the national average.

One other set of statistics confirms that Minnesota is not repelling military retirees. US Census figures from the 2000 Census and 2006-2008 Census American Community Survey indicate that Minnesota is above the national median in the proportion of civilian veterans.

Expect to see the claim "taxes + gubmint = repel people" repeated endlessly by the Emmer campaign. At some point someone needs to push back and ask for real data to back up the claim, instead of accepting vague and fuzzy assertions that every non-welfare recipient in the state is fleeing for North Dakota. Like all people, veterans choose where to live based on a number of factors, and tax rate is only one of those factors. Quality of education, cost of living, quality of life, family ties, job availability, and others are all important in attracting relocating veterans. I'd guess that Minnesota's migration pattern of being a high sticky / low magnet state applies to veterans and persist regardless of specific tax incentives. And as I've previously argued, the migration hypothesis pushed by small-gubmint/anti-tax politicians lacks data to back it up. We'd be better at attracting residents by focusing on shoring up our education system and preserving our environment.

There are good arguments to be made for expanding the existing tax credit for military pensions. Minnesota currently provides a $750 tax credit for recipients of military pensions that phases out beginning at $30,000 in adjusted gross income. The fiscal impact (.pdf) of the current tax credit is estimated at $11 million annually. This approach of using a tax credit and capping the income of recipients means that the present approach provides a strong benefit for lower income military pensioners, and little to no tax benefit to higher income retired military personnel. If Ralph Donais is correct that "95 to 98%" of veterans are unable to take advantage of the existing tax credit, the Legislature should consider raising the cap on income to allow more veterans to do so.

It is a bipartisan sentiment that veterans deserve top quality health care, education benefits, and assistance from all levels of government. Emmer's proposal deserves consideration. But his belief that taxes are driving veterans from the state is plainly false.

Follow me on Twitter @aaronklemz

No comments: