The Iowa Legislature is currently considering new tax bills that aim to offer substantial new tax breaks for seniors, despite there being no evidence of need or recognition of existing preferences. While it is true that seniors in Iowa have the lowest poverty rate of any age group, it is also essential to note that they already receive a considerable number of special provisions under Iowa law that benefit them. These include the exemption of all Social Security benefits from tax, the exemption of the first $6,000 in pension benefits per person from tax, and an additional $20 personal credit for those aged 65 or older.
In addition, seniors collecting just an average Social Security benefit could pay no tax even with a total income of up to $40,000 for a single person, or up to $69,000 for a couple. This means that additional tax breaks will only serve to benefit the wealthiest seniors who already pay substantially less in taxes than working families with the same income. Under current Iowa tax law, seniors receive substantial tax breaks, and a single retiree earning the average Social Security benefit could receive as much as $24,050 in pension income, for a total income of $40,410, and pay no Iowa income tax. In contrast, a family of four with both parents working and the same total income entirely from wages and salaries would pay over $2,000 in Iowa income taxes.
It is worth noting that Iowa’s seniors are half as likely to be in poverty as Iowa’s children, and almost four in ten have current incomes above 400 percent of the federal poverty level. Furthermore, the exemption threshold for income tax for those aged 65 or older is significantly higher than for non-elderly taxpayers. As such, it is hard to justify further tax breaks for seniors without considering their overall income.
Both the Governor’s proposal and SF2383 offer additional preferential treatment for seniors without regard to their overall income. The cost of these provisions may be in excess of $50 million annually. Since most seniors already receive substantial preferential tax treatment under the Iowa income tax, most are not subject to any tax until their incomes are well above the poverty level. Additionally, many of the greatest benefits accrue to very high-income seniors.
To ensure tax fairness, the current benefits and the exclusion of income from Social Security and pension income from tax should be phased out at high income levels. Lawmakers should not offer additional tax benefits solely for the reason of being over 65, as this would further reduce tax revenue and threaten the adequacy of Iowa General Fund revenue, which benefits programs that support all Iowans but especially those that support low-income Iowans at any age.
It is essential to emphasize that while seniors have contributed greatly to society, they should not be offered preferential treatment at the expense of other Iowans. As such, lawmakers need to ensure that any tax breaks for seniors are based on their overall income level and needs, rather than their age. Any additional tax breaks should be targeted to benefit low-income seniors who need it the most. Finally, it is important to note that reducing tax revenue could threaten the ability of the government to fund programs that support all Iowans, including low-income Iowans at any age.