BILL ANALYSIS Ó
AB 1275
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Date of Hearing: May 27, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
1275 (Gray) - As Amended May 22, 2015
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|Policy |Revenue and Taxation |Vote:|9 - 0 |
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Urgency: Yes State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill creates, for taxable years beginning on or after
January 1, 2015, an exclusion from gross income for retirement
pay received by a Purple Heart or Medal of Honor recipient from
the federal government for military service performed in the US
armed forces, the reserves, or the National Guard.
FISCAL EFFECT:
1)Insignificant costs to the Franchise Tax Board (FTB) to
administer changes.
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2)Estimated GF revenue decreases of $55 million, $37 million,
and $37 million in FY 2015-16, FY 2016-17, and FY 2017-18,
respectively.
COMMENTS:
1)Purpose. According to the author, making military retirement
pay tax-free for Purple Heart and Medal of Honor recipients
makes California a more attractive place for those honored
retirees, potentially encouraging them to work in this state.
The author explains after 20 years of service, military
retirees are entitled to a pension worth half their base pay.
With a large portion leaving the military between ages 38 and
45, many retirees begin second careers, and honored retirees
in particular bring leadership and expertise with them.
2)Proper Reward? Retirement income, including defined benefit
income, is generally taxable regardless of the former
occupation of the retiree. There are several occupations that
may deserve commendation, including teachers, first
responders, police, firefighters, and others, that nonetheless
pay tax on their retirement income. From an incentives
standpoint, it could be argued offering a tax exclusion on
retirement income will incentivize people to join those
occupations. It would be harder to argue, however, that
military valor could be incentivized in such a way.
Though recipients of the Purple Heart and Medal of Honor are
among our society's most admired citizens, the committee may
wish to consider whether exclusion of retirement income from
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tax is appropriate, and whether this will lead to similar tax
exclusions for other retirees deemed to have given the
appropriate sacrifice to society.
Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081