Lawmakers Are Right to Cap Exemption for Social Security Benefits

In its original form, HB1174 would have allowed Social Security recipients to exempt any income from their benefits from state income taxes. Essentially the law would have allowed those taxpayers to reduce their taxable income by the amount of their benefits.

But the state Senate has sought to water down the exemption. “[T]he Senate blunted the fiscal impact of the bill, and a conference committee landed at a compromise that limits the tax break to those with a federal adjusted gross income of $50,000 or less, or at most $75,000 for married couples filing jointly,” John Hageman reports.

What was an estimated $20.8 million tax reduction was turned into a $4.2 million reduction.

The House didn’t like the change, rejecting it and sending the bill back to conference committee. Hageman quotes Rep. Ben Koppelman (R-West Fargo) saying “it’s sad that we think that tax relief is just too expensive.”

[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#ffffff” txt_color=”#000000″]Tax codes work best when the burden of taxes is low and the tax base is broad.[/mks_pullquote]

I think the Senate has the right of this, however. While it makes sense, perhaps, to lighten the burden for Social Security recipients with low incomes, exempting all Social Security income from the state income tax is a bridge too far.

This isn’t a question of lowering taxes. If I had my way lawmakers would pass a proposal which would leverage Legacy Fund earnings to reduce, and eventually eliminate, state income taxes for everyone.

And that’s the key phrase. For everyone.

Tax codes work best when the burden of taxes is low and the tax base is broad. Which is to say that nobody should have to pay a lot in taxes, relative to their economic standing, but everyone should have to pay some.

The more income we exempt from taxes, the narrower the tax base becomes. That not only puts upward pressure on the taxes the rest of us pay, it also creates issues when it comes to voting on government policy. Those who feel little or no burden when it comes to paying for government are very likely to vote for more government services largely paid for by other people.

If we want to lower tax burdens, lower them for everybody. Not just factions of the electorate.