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Daiber, Biss open to some form of retirement income tax

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Illinois

Democratic gubernatorial candidate Bob Daiber put some distance between himself and his primary opponents Thursday afternoon by suggesting the state tax retirement income to help pay pension obligations.

Daiber, the only Downstate candidate running for governor, said those seeking the office had to “think outside the box” to meet the state’s more than $130 billion pension obligations instead of acting as if it could be solved by spreading “fairy dust.” To do that, Daiber said everyone in the state will have to pitch in, from retirees to those currently receiving large tax breaks. […]

State Sen. Daniel Biss, D-Evanston, one of Daiber’s opponents in the Democratic primary, said he does not support taxing retirement income under the state’s current flat tax structure, but would be open to the idea under a progressive system.

“I would only consider taxing retirement income once we’ve amended the Illinois Constitution to allow for a progressive income tax so that we tax retirement income of wealthier Illinoisans rather than burden middle-class Illinoisans,” Biss said.

Fellow contender J.B. Pritzker does not support a tax on retirement income, his campaign said.

Chris Kennedy’s campaign couldn’t be reached for comment by the reporter.

posted by Rich Miller
Friday, Jan 26, 18 @ 2:12 am

Comments

Lead balloons don’t float very well.

Comment by Aldyth Friday, Jan 26, 18 @ 7:17 am
Of course they are, Dems love more taxation.

Comment by Piece of Work Friday, Jan 26, 18 @ 7:36 am
“Looking forward” to a pension that’s not much over the poverty line, probably requiring me to still work at least part-time after decades of service… and now they want to claw back some of the money. No. I was paying in all this time, their failed stewardship is no excuse to rob me of the money I contracted to be paid. When you can put me in a time machine and give me back the decades of time I put in, we’ll talk.

Comment by Anonymous Friday, Jan 26, 18 @ 8:04 am
I totally understand taxing retirement income. It’s already federally taxed. It’s nice that it’s not currently taxed by the state. However, there’s no reason why a well off retiree couldn’t pay state taxes on anything over a set amount. That amount should be high enough to fully allow for all the extra expense incurred by our elderly, and in consideration that they usually are too infirm to generate additional income.
It should also apply to all retirement income. State retirees should not be treated differently from private sector retirees. All that should take care of anonymous’s concerns.

Comment by Thoughts Matter Friday, Jan 26, 18 @ 8:21 am
Under the current understanding of diminishment, how could a state tax on public employee pension income withstand a challenge in court? If the goal is to claw back some of that income, how is it constitutionally any different than a reduction in benefits?

Comment by JB13 Friday, Jan 26, 18 @ 8:25 am
We already lose a large amount of retirees due to weather. Watch a max exodus if this is enacted.

Comment by Anonymous Friday, Jan 26, 18 @ 8:33 am
@JB13-taxing income is different than diminishing the actual pension payment. The outcome may be the same but taxes are not a consideration under the pension clause. RNUG and AA are far more expert in this than I am and can provide more detail if they have the inclination.

@Anonymous 8:04- Your retirement income is already taxed at the Federal level. I support taxing retirement income (pensions) over $75k. I will be one of those taxed in that scenario and have no problem with it to help fund the pension system, but for me that would be the end of it. No further changes to pensions.

Comment by JS Mill Friday, Jan 26, 18 @ 8:36 am
JB13–The proposal is to tax retirement income. Not public pensions. Now, to single out one group of retirees to tax would never fly–discriminatory! But to tax all retirees’ income would work.

Comment by AnonymousOne Friday, Jan 26, 18 @ 8:41 am
== how could a state tax on public employee pension income withstand a challenge in court?

As long as it was a general policy, ie, a tax on all retirement income, it should be held as legal. If you tried to tax only government pensions, I can see the Pension Clause being a problem.

And even though other states (who don’t have a constitutionale pension clause) explicitly exclude Docial Security, I think that might be an issue of both unequal treatment and the Pension Clause. Depends on how loose the courts wants to interpret it; after all, SSI is a government pension.

For all these reasons, that’s why I advocate for taxing all retirement income after a large exclusion.

Disclosure: as I receive both a state pension and SSI, it will hit me one way or another.

Comment by RNUG Friday, Jan 26, 18 @ 9:01 am
JS Mill is right — the issue of whether taxing income is a diminishment has been settled for decades in federal tax cases. Originally, some congressmen got some traction from arguing that taxing their salaries was a diminishment prohibited by the federal constitution (and FDR actually filed a return after the federal rates were increased, reporting his tax at the old rates on the grounds that the increase was a diminishment), but they eventually lost.

Comment by Whatever Friday, Jan 26, 18 @ 9:04 am
==JS Mill 75K==
75k is a pretty big exclusion. I thought the number being banded about was 25k. And I heard that would excluded a lot of income and make the tax less effective in reducing debt. I’m ok with a retirement tax coupled with a graduated income tax. I’ll pay more if Rauner pays more.

Comment by Anotherretiree Friday, Jan 26, 18 @ 9:11 am
At least we now know the true progressive candidate.

Interesting play to align a progressive income tax constitutional amendment w/ retirement income taxation. They go hand-in-hand anyway as you can’t have progressive tax structure if you entirely exclude one type of income. Not one state with graduated tax rates exempts retirement income. Not one.

Comment by City Zen Friday, Jan 26, 18 @ 9:15 am
The Daiber proposal in a 1 percent tax on all retirement income - no matter the source, and no matter the amount. Of course if retirees have income from work or investments, that income would be taxed at whatever schedule is in effect, as it is now. But 1 percent for all retirement income.

Comment by James R. Anderson Friday, Jan 26, 18 @ 9:16 am
== and now they want to claw back some of the money.==

Every state with a state income tax claws back some retirement money, except flat tax states IL and PA. We are outliers. We are broke.

Comment by City Zen Friday, Jan 26, 18 @ 9:22 am
==And even though other states (who don’t have a constitutionale pension clause) explicitly exclude Docial Security, I think that might be an issue of both unequal treatment and the Pension Clause.==

Except that 401k and pension contributions are pre-tax and SSI contributions are not. Big difference in how they should be taxed in retirement.

Comment by City Zen Friday, Jan 26, 18 @ 9:30 am
Okay I am a purist on Social Security terminology. SSI is not the retirement benefit. SSI is Supplemental Security Income, a benefit administered by the SSA and given to persons who did not have sufficient wage history to qualify for regular Social Security benefits. Retirement benefits are sometimes labeled RSDI or OASDI. As to the tax on pensions I agree it may help to put in place and tax over a certain threshold so hight that it may exclude most persons who do not receive other pensions.

Comment by illinifan Friday, Jan 26, 18 @ 9:41 am
Its called shared sacrifice.. If Illinois is to have any hope of getting out of this mess all citizens (including retirees) will have to pony up more money.. As my democratic state rep told me last fall - Look at a graduated income tax as an opening to start taxing retirement income..

Comment by Anonymous Friday, Jan 26, 18 @ 9:44 am
The fact retirement income is not taxed in Illinois is bananas- there are many folks collecting multiple retirement income checks and not paying any state taxes. As one of 9 states that don’t tax retirement, this is something IL should be taking a hard look at.

Comment by ILDemVoter Friday, Jan 26, 18 @ 9:45 am
==Chris Kennedy’s campaign couldn’t be reached for comment by the reporter.==
More amateur hour by Kennedy.

Comment by Robert the Bruce Friday, Jan 26, 18 @ 9:47 am
Since Illinois is able to exclude certain types of income from taxation (such as retirement income), can it give a partial exclusion and still fit under the flat tax rule?
For example, an 80% exclusion would produce a 1% effective rate. Logically, if the state can give a full exclusion it should be able to give a partial exclusion.
Do any tax experts have an opinion on this?

Comment by Last Bull Moose Friday, Jan 26, 18 @ 9:50 am
RNUG would you be able to tax public sector pensions at a higher rate compared to private sections, and other forms of retirement?

The state should just create a 3 percent fee for processing pension payments over $75,000. The 3 percent COLA is unsustainable.

Comment by Almost the Weekend Friday, Jan 26, 18 @ 9:51 am
Taxes are completely separate from pensions and they are two completely different legal realms with very little relation to each other. A challenge to a state tax on retirement income would presumptively fail. A tax only on IL state pensions might be a different story, since you could that the state is constructively seeking to alter a contractual benefit by other means. It would certainly be an interesting case with broader implications. I’m actually surprised Rauner hasn’t brought it up as an addition to the Turnaround Agenda, which tells me that it is a bi-partisan non-starter.

SSI is not a pension, either. It is a tax that may result in a benefit (a benefit that has changed many times over the years), which is entirely different than putting a portion of one’s wages into a pension/IRA. If you die young, your estate doesn’t get back the SSI tax you paid but never received a benefit from.

Comment by Downstate43 Friday, Jan 26, 18 @ 9:52 am
Not a word out of Biss on how to reduce taxes.Just tax more stuff and increase the exodus out

Comment by Silicon Prairie Friday, Jan 26, 18 @ 9:52 am
Put a fork in him…

Comment by Mouthy Friday, Jan 26, 18 @ 9:57 am
==would you be able to tax public sector pensions at a higher rate compared to private sections..

What kind of thinking is this? So you’re saying that because deadbeat poiticians ripped off public employees by spending money that should’ve gone into their retirement funds on everyone/anyone but them, they should now be penalized because the funds have debt? What?

Are you aware that public employees don’t have the option to not participate in the pension fund of their designation? That chunk of money they contributed every single paycheck is gone and they believed that our state was adding their portion and investing wisely.

So you think they should be dumped on again?

Private employees have choices. If they don’t save and have to live on only social security, that’s on them. No whining.

But some public employees don’t get social security and the one and only retirement income they have is their pensions.

Comment by Anonymous Friday, Jan 26, 18 @ 9:58 am
JB is smart to say he doesn’t support taxing retirement income. It will be necessary to do it, but he can lay the blame on the legislature and say he signed off on it as a compromise to solve the state’s fiscal woes.

Why anger all the retiree voters before the election. Just go after the one percent and take a victory lap.

Comment by SSL Friday, Jan 26, 18 @ 9:59 am
== Okay I am a purist on Social Security terminology. ==

Gotya. Sorry about the sloppy language.

But that does bring up some interesting taxation issues about SS and pensions.

When is a government pension clearly deferred income via contract versus a simple grant? Here in Illinois, prior to the pension clause, the courts generally looked at government pensions as grants … because the government was just giving giving them and was free to unilaterally change or alter them. They became actual fixed contracts for deferred compensation because of the Pension Clause.

Social Security is also generally viewed as a government grant by the court system since there is no actual contract to provide old age benefits, and the terms can be unilaterally changed.

And yes, I know this has decades of federal court decisions re the IRS but it isn’t completely settled law at the State level. Plus the tax treatment (when to tax the funds, at contribution or withdrawal) of SS and various pension plans varied over the years.

Lots of moving pieces and the potential for monkey wrenches to be thrown in.

So probably best to keep any tax plan simple; if it is Federally taxable retirement income, then Illinois should tax a portion of it.

Comment by RNUG Friday, Jan 26, 18 @ 10:09 am
== would you be able to tax public sector pensions at a higher rate compared to private sections, and other forms of retirement? ==

I don’t think you could get away with that if challenged in court. With that scheme you would have both a unfair treatment and a diminishment argument.

Comment by RNUG Friday, Jan 26, 18 @ 10:12 am
Anonymous,

I’d be interested to hear your take on tier 2 pensions subsidizing tier 1. I’d be fully supportive for pensions if they increased their pension contributions. When the market crashed about ten years ago private sector pensions had to increase their contribution limits,public sector not a dime.

Comment by Almost the Weekend Friday, Jan 26, 18 @ 10:21 am
IL should enact an “earnings tax” on retirement. Where any employer in the state paying a retirement benefit over a certain amount is taxed. Then we could enact the tax on people regardless of where their retirement residence is. I know CA tried to tax pensions over state lines and it failed in court but that was set up to fail. Calling it an “earnings tax” should side-step a lot of issues.

Comment by Robert the 1st Friday, Jan 26, 18 @ 10:21 am
I am not great with tax and federal law, but for tax purposes SSI is not taxable for any reason. Current tax law taxes 85% of social security benefits (disability, survivors and retirement) if you have other income over a certain threshold. We could do something similar with the state tax system. Tax a percentage of pensions when AGI meets a threshold requirement. But I do think this would also require an amendment to the constitution.

Comment by illinifan Friday, Jan 26, 18 @ 10:31 am
== would you be able to tax public sector pensions at a higher rate compared to private sections, and other forms of retirement? ==

I would expect that to be challenged under the equal protection clause

Comment by Bigwich Friday, Jan 26, 18 @ 10:37 am
==requires an amendment== I’m not sure it requires an amendment. We already have different tax rates based on type of income. My tax rate is 0%. If that satisfies the flat tax requirement, then an exclusion less than the current 100% should also.

Comment by Anotheretiree Friday, Jan 26, 18 @ 10:42 am
Regardless of the merits of the proposal, I imagine Rauner would love to face Biss in the general and use this issue even though Biss said it with conditions. Taxing retirement income polls so poorly. We’ve seen this issue blow up before.

Comment by My Button is Broke... Friday, Jan 26, 18 @ 10:48 am
Almost

TRS has had increases. In 1980 contribution was 8%. More recently, 9.4% And as for Tier 2 supporting Tier 1, that isn’t something Tier 1 folks celebrated. It’s those outside the system that rallied for something/anything to be done. But, given that, why would you complain? Somebody has to pay more and it’s not you. It’s not my preference but the public wanted blood and wants more still.

Comment by Anonymous Friday, Jan 26, 18 @ 10:48 am
I agree with Thoughts Matter. Yes, pols chiseled, shifted, lied, etc. with the $ that should have gone to pensions. But that’s what politicians do. What do we do NOW is the issue, and I don’t see how a solution comes without taxing retirement as a part of the plan. It’s a %&($%, but it’s gotta be done.

Comment by Anonymous Friday, Jan 26, 18 @ 10:48 am
Taxing retirement income can set off a larger exodus of retirees from the state. I hope any proposal also includes an analysis of increased taxes tipping retirees to finally seek warmer and more tax friendly states.

Comment by Barrington Friday, Jan 26, 18 @ 10:49 am
I want to also add that taxing retirement income will also affect non-retirees. One example would be those converting traditional IRAs ro Roth IRAs.

Comment by Barrington Friday, Jan 26, 18 @ 10:53 am
===== would you be able to tax public sector pensions at a higher rate compared to private sections, and other forms of retirement? ====
No way. If constitution allowed for graduated income tax, you could conceivably tax retirement income but exempt the first $X of retirement income from tax. By doing that, you’d effectively tax the more generous defined benefit pensions, which are held disproportionately by state workers.

Comment by Robert the Bruce Friday, Jan 26, 18 @ 10:58 am
Bruce. Not as many as you think

Comment by Name Friday, Jan 26, 18 @ 11:10 am
=The 3 percent COLA is unsustainable.=

First, it isn’t COLA it is the Automatic Annual Increase. Second, it is not “unsustainable”.

THe issue isn’t the annual cost of the pension, it is the historic or structural debt created by 90 plus years of purposeful underfunding. There is not greater pension crisis today than there was in 1970 given that the percentage of funding of liabilities is nearly the same.

There is a budgetary crisis that was created when Quinn began paying the debt amount due per the payment “ramp” that was created and authorized while Jim Edgar was governor.

Unless new revenue goes directly to the pension this issue will continue forever. As someone who qualified for SSI and will qualify for a pension, most of my SSI money will be forfeit even though I paid in. I can live with that because I have a quality pension. I don’t expect to diminish everyone’s SSI because I lose out. I also have no problem with taxing retirement income, preferably beginning at $75k so that those with more modest retirement income are not put into a hardship position. But that money should go to pay off the pension debt. I’ll put my money where my mouth is, but I expect that this will be the end of the “pension crisis”.

Comment by JS Mill Friday, Jan 26, 18 @ 11:25 am
Yes, let’s do that and make sure to call it the “Anyplace but Illinois” bill. Because that what’s many seniors will be doing, getting out of town. You just gotta love politicians who, either throught their own actions or through their party, don’t pay bills for decades and then expect the rest of us to fix it. I’ll pay this when state legislators eliminate their pay, only a stipend for room and board, and no pension. Think that will fly?!

Comment by NeverPoliticallyCorrect Friday, Jan 26, 18 @ 11:28 am
For all of you advocating more taxes, let’s give residents but one more reason to flee the state. And if you strongly in favor about the state taxing retirement income, feel free to send checks to Revenue.

Comment by Piece of Work Friday, Jan 26, 18 @ 11:34 am
==TRS has had increases. In 1980 contribution was 8%. More recently, 9.4%==

That’s because the retirement service credit was increased from 1.67 to 2.2%. Don’t pretend you didn’t get anything in return. You are more than welcome to trade in that paltry 1% increase for an additional 8 years working. And the other 0.4% is ERO and is fully refundable if you don not participate.

==The issue isn’t the annual cost of the pension, it is the historic or structural debt created by 90 plus years of purposeful underfunding.==

And not creating a new tier in 1970 when they codified funding into the state constitution.

Comment by City Zen Friday, Jan 26, 18 @ 11:46 am
You already get an extra $1k exemption on your IL 1040 if you are over 65. Up that to $30k, but only on amounts from retirement income, and you have a de facto progressive tax on retirement income (0% for the first $60k MFJ, 4.95% above that).

Comment by thechampaignlife Friday, Jan 26, 18 @ 11:56 am
Make sure you wet your finger before you touch the third rail Biss.

Comment by jimk849 Friday, Jan 26, 18 @ 11:58 am
Something I have advocated for years. You can exempt the first $50,000 of federally taxable retirement income or any other amount you want to exempt and tax the rest. It would give you what is effectively a progressive tax and would probably be legal without a constitutional amendment.

Comment by SAP Friday, Jan 26, 18 @ 12:06 pm
==would you be able to tax public sector pensions at a higher rate compared to private sections, and other forms of retirement==

The only reason for even suggesting that is punishment.

Comment by Demoralized Friday, Jan 26, 18 @ 1:36 pm
@PieceofWork…if people are fleeing because of Illinois following the norm of 41 other states on taxing retirement and implementing a progressive incoming tax…good riddance to them. The state income tax here is one of the lowest and you’ll be very hard pressed to find state and local government employees who make nearly as much as they do here with such generous pensions. Best of luck

Comment by ILDemVoter Friday, Jan 26, 18 @ 2:22 pm
Pensions don’t work. Unless you can change them.

Comment by Ron Friday, Jan 26, 18 @ 2:53 pm
@Ron- You are just loaded with answers/S

All of them punitive

None of them good

Comment by JS Mill Friday, Jan 26, 18 @ 3:03 pm
If our retirement was taxed, we would feel free to go join any of our children who live in states that do some type of taxation on retirement income.

Before you say adios, just remember that since we don’t have those millionaire pensions everyone seems to think public employees have, we recirculate our money into the ILlinois economy. We could and would easily do the same in another state, helping their economy.

Comment by Anonymous Friday, Jan 26, 18 @ 3:22 pm
==we would feel free to go join any of our children who live in states that do some type of taxation on retirement income.==

“Hi, Dad. Oh, you brought your suitcase this time. Uhhh…”

==we recirculate our money into the ILlinois economy==

Just like everyone else who pays state income taxes. Funny how that works.

Comment by City Zen Friday, Jan 26, 18 @ 3:29 pm
@anonymous
I think that’s the point- Illinois is going to have to dig itself out of its hole and part of that is taxing retirement.
Even though there is an exodus of IL lifers, there is a significant increase in the 23-35 demographics who are moving to ChicagoLand from the Northeast, where housing, taxes and general consumption cost are *actually* expensive. With that said, everyone knows that public employees are recirculating money into the Illinois economy- everyone who resides here is recirculating money into the Illinois economy. That’s just how economics works. Adding an X

Comment by ILDemVoter Friday, Jan 26, 18 @ 3:31 pm
Go ahead and exempt the first 50k. Most state pensioners are below that lol

Comment by Name Friday, Jan 26, 18 @ 3:48 pm
== Just like everyone else who pays state income taxes. Funny how that works. ==

Retirees may or may not not pay state income tax, but they definitely pay property tax, sales tax, assorted utility taxes, dining / entertainment taxes, and even annual license plate fees. It all adds up …

Comment by RNUG Friday, Jan 26, 18 @ 4:06 pm
== Go ahead and exempt the first 50k. Most state pensioners are below that lol ==

The average state pension is around 32K. If you toss some SS into the mix for a couple, you probably get around $45K - $50K for a household income, which is about the average Illinois household income.

Comment by RNUG Friday, Jan 26, 18 @ 4:09 pm
My point is not that our taxation would hurt ILlinois but that the incentive to stay disappears. Since there is so much concern about the debt created by our government, we wouldn’t be helping pay it down. We’d leave it to you. We’d be helping another state function well.

Comment by Anonymous Friday, Jan 26, 18 @ 4:26 pm