BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1275


                                                                    Page  1





          Date of Hearing:   May 27, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          AB  
          1275 (Gray) - As Amended May 22, 2015


           ----------------------------------------------------------------- 
          |Policy       |Revenue and Taxation           |Vote:|9 - 0        |
          |Committee:   |                               |     |             |
          |             |                               |     |             |
          |             |                               |     |             |
           ----------------------------------------------------------------- 


          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.








                                                                    AB 1275


                                                                    Page  2










          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  








                                                                    AB 1275


                                                                    Page  3





            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