April 8, 2008

A Financial Plan for Rhode Islanders

Justin Katz

I'd been meaning to note financial planner George Wright's thoughts on demographic trends in Rhode Island:

Financial advisers are seeing a noticeable increase in affluent retirees moving out of the state, especially to Florida, which has no state income, inheritance or personal-property taxes, and is about three hours away on Southwest Airlines.

Here's a plan: Sell your million-dollar house, buy two $400,000 houses, in Florida and Rhode Island, come north in the summer to see the grandkids and save $30,000 a year in taxes. Wait until the Baby Boomers hit!

For Rhode Islanders who pay the alternative minimum tax, one of the main triggers of that tax is the Rhode Island income tax. The mentality of our representatives is, and has been since the 1930s, regressive. This mentality will keep our beautiful state at the bottom of the economic ladder forever.

Come on, George, there's got to be an "unless" at the end of it all. Here's mine: Break the corruption that funding under threat of the taxman's gun inevitably breeds, turn the lights on for those whom the pushers have hooked on handouts, and open the door for innovative and talented people with stars in their eyes and watch as Rhode Island fills its lungs and begins to sprint.

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Just think of the irony. Sundlun got his monument to himself; Southwest Airlines moved in ... and made it easier for actual taxpayers to change their tax domicile to income-tax free Florida.

The law of unintended consequences strikes Rhode Island again.

I'm starting to get dizzy sitting here in RI .. this states circling in the bowl seems to be rapidly accelerating.

Just wait for the May revenue estimates. The General Assembly pooh-bahs will declare that they're shocked! shocked! at the numbers, and profess that while they fully intended to hold to their representations not to raise taxes ... "but, well, this changes everything" and they're now "reluctantly forced" to massively increase taxes ... but they'll make some [minor] "cuts" too ... and declare that they've done the right thing because the "pain has been shared."

Posted by: Tom W at April 8, 2008 10:22 PM

Tom W,

There are 7 states that do not have state income tax. They are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

Many states exclude Social Security retirement benefits from state income taxes. The District of Columbia and 26 states with income taxes provide a full exclusion for Social Security benefits -- Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, and Virginia.

Ten states exclude all federal, state and local pension income from taxation. These include Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania. Among these 10 states, only Kansas taxes any Social Security income, but only to the extent it is subject to federal taxation. These 10 states differ on the taxation of retirement income from private-sector sources. Kansas and Massachusetts do not exclude any private-sector retirement income, but most of the others allow a fairly broad exclusion. In tax year 2008 Kansas residents with an adjusted gross income of less than $75,000 may exclude Social Security income from state taxes. Pennsylvania allows a full exclusion. Alabama excludes income from defined benefit plans. Hawaii excludes income from contributory plans. Illinois and Mississippi exclude income from qualified retirement plans. Louisiana, Michigan and New York cap the private-sector exclusion at $6,000, $34,920 and $20,000, respectively.

The states that do not tax retired military pay are: Alabama, Alaska, Florida, Hawaii, Illinois, Kansas, Kentucky*, Louisiana, Massachusetts, Michigan, Mississippi*, Missouri*, Nevada, New Hampshire, New Jersey, New York, North Carolina*, Ohio (tax year 2008), Oregon*, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming.
(*With conditions)

Five states (California, Connecticut, Nebraska, Rhode Island, and Vermont) allow no exemptions or tax credits for pension and other retirement income that is counted in federal adjusted gross income.

Source: Retirement Living Information Center. http://www.retirementliving.com/

According to 2006 US Census Bureau survey, the top ten states with highest percentage households reporting retirement income (where retirees are moving to) are in order
#1 West Virginia = 24.2%
#2 Delaware = 23.3%
#3 Hawaii = 22.2%
#4 Michigan = 21.1%
#5 Pennsylvania = 20.4%
#6 Virginia = 20.2%
#7 Alabama = 19.9%
#7 Ohio = 19.9%
#9 Maryland = 19.7%
#9 New Mexico = 19.7%
#11 Florida = 19.3%
#11 South Carolina =19.3%
SOURCE: http://factfinder.census.gov/home/saff/main.html?_lang=en

Posted by: Ken at April 9, 2008 1:54 AM
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