Republicans have proposed 19 separate bills to eliminate the income tax from pension payments and social security benefits.
The proposals come as the state battles a number of issues including a $1.7 billion budget deficit and an outmigration trend as people, particularly retirees, move to other states.
However, the numbers involved in eliminating the income tax on pensions and social security benefits could prove difficult during a time of major fiscal deficits. According to the U.S. Census Bureau, 15.8 percent of Connecticut residents are over the age of 65 and presumably would be receiving either social security or some kind of retirement income.
Connecticut already has income tax exemptions for social security benefits depending on a retiree's total income. Starting in 2017, Connecticut also exempts 50 percent of teacher pensions from the state income tax and there are exemptions for U.S. military pensions and railroad retirement income.
Retired state employees living in Connecticut receive $95 million per month in pension payments, according to figures provided by the state comptroller's office. Based on just that group alone the state would lose $6.1 million per month.
Few of the bills suggest capping the amount of social security or pension income that could be exempt, which for many state pensioners could prove lucrative. The state has 885 retired state employees who earn six-figure pensions.
The $95 million per month the state pays in pension costs does not include municipal retirees or pension payments made by private companies, which would also be covered in the proposed bills.
Defined benefit plans have nearly disappeared from the private sector but some major Connecticut companies like Pratt & Whitney still offer them to employees.
There are no bills filed that would make similar exemptions for withdrawals from typical 401(k) plans.
People receiving a pension payment still pay Connecticut's 6.5 percent income tax, but social security payments are different and already have some state exemptions.
Of the 41 states that have an income tax, 27 states have an exemption for social security payments. Connecticut exempts income tax on social security payments for an individual with an adjusted gross income of less than $50,000 or $60,000 for a couple.
If their income exceeds these levels, they can then deduct 75 percent of the social security income. This matches the federal governments social security exemption.
According to the American Association of Retired Persons, 640,252 Connecticut residents were receiving social security benefits in 2012 and the average monthly benefit was $1,372 per month.
Presumably the bills seek to make Connecticut more friendly to retirees, lessening the incentive for them to move to states like Florida which don’t impose an income tax. Connecticut remains a notoriously difficult state to retire in and retirees leave the state more than any other age group.
Connecticut faces an outmigration problem as people seek more job opportunity, lower taxes and lower cost of living in other states. The Connecticut Commission on Economic Competitiveness found that people over the age of 65 were the largest age group moving out of state.