Audit: Retiree tax break saves Georgia seniors $1.37 billion in 2023

Whether it helps attract wealthy retirees to state is unclear

A tax break on pensions and other retirement income for Georgia seniors will cost the state — and save retirees — about $1.37 billion this year, according to a new state audit report.

The report found little support for the notion that the retirement income exclusion played a significant role in persuading wealthy retirees to move to the state — one of its stated objectives — or that such an in-migration of retirees is a significant driver of economic growth.

The audit report by Robert Buschman of Georgia State University’s Fiscal Research Center — which provides the state with financial assessments of proposed tax breaks — is part of a series of reviews requested by the Senate Finance Committee and House Ways and Means Committee.

The committees are reviewing tax breaks to determine how much they cost the state and whether they do what supporters said they would.

Georgia first enacted a tax exclusion for retirees more than 40 years ago. It has increased several times and became a prominent part of Republican Sonny Perdue’s campaign for governor in 2002, when, as an upstart Republican contender facing a Democratic governor, he proposed slashing taxes on seniors.

Perdue passed bigger exclusions once he became governor. Currently, up to $65,000 per person in nonwork income is excluded from taxes for taxpayers 65 and older and $35,000 for Georgians ages 62-64.

Buschman’s report said that in 2021 the median tax break was $517 on about 947,000 returns filed by retirees.

The report said all 41 states with a state income tax offer some break for retirees.

Two neighboring states — Florida and Tennessee — don’t have state income taxes, so Georgia faces stiff competition if retirees are deciding where to live based on how much income will be taxed.

Buschman’s report says other factors might attract retirees.

“Among these are a relatively low cost of living, a mild climate and a variety of amenity-rich coastal, mountain and urban living options,” he wrote.

North Carolina, which ranked seventh for net in-migration of seniors in the country in 2019, taxes private pension and retirement plan income, he said. Arizona and Idaho, two of the top states for senior in-migration, also offer no such exclusions.

Georgia senators have pushed for more reviews of various corporate and personal tax breaks in recent years to see whether the state is getting its money’s worth.

So far the reviews have found that in some cases, most of the jobs and other benefits credited to the state tax breaks would have been created or happened without the credits or exemptions.

The state House and Senate passed legislation in 2021 that was a first step toward greater accountabilty: allowing the chairmen of the tax-writing committees to request reviews of a limited number of tax breaks each year.

The effectiveness of some tax breaks was questioned anew late last year by a series of reviews released by the state auditor’s office.

The review of a 32-year-old jobs tax credit that cost $120 million in 2019 found that only 11% of jobs for which companies got the credits were created because of the breaks, which were designed to increase employment largely in rural Georgia.

The review of a low-income housing tax credit found much the same thing, that most of the economic activity would have happened without a state tax break.

The retiree exemption report was the latest review from the Department of Audits.

One incentive for capping or eliminating tax breaks, officials say, is that it could save money that the state could then use to reduce income tax rates, a top goal of House and Senate leaders.

The General Assembly last year approved gradually lowering state income tax rates from 5.75% to 4.99% by the end of the decade.

Lt. Gov. Burt Jones wants to eliminate the state income tax, something that would be difficult today because it is the largest source of revenue to pay for K-12 and university education, public health care programs, the Georgia State Patrol, prisons, parks and other programs and services.

However, senators say capping or eliminating large tax breaks could make slashing the income tax rate more doable.

The retirement income exclusion is understandably popular with a group of Georgians — retirees, who are generally active voters — and nobody at the Capitol is publicly talking about making changes to it.

One side effect of the tax break: Last year when Gov. Brian Kemp and lawmakers approved using $1 billion in state surplus money for an income tax rebate, many retirees were excluded. That’s because only those who had taxable income during the previous two years were eligible for the rebate. Many retirees didn’t have taxable income because of the retirement income exclusion.

The same will likely be true this year, when lawmakers again consider a $1 billion income tax rebate.