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