Retiree Taxation Loophole Criticized

Article excerpt

Byline: Matt Cooper The Register-Guard

Critics say the Lane County commissioners' proposal for a first-ever county income tax is unfair because it would tax retirement payments to people from the private sector, but not payments to retirees from the public sector.

The inequity - due to an obscure state law plus a past legal ruling - may become the controversial measure's Achilles' heel.

The tax, which will be on the November ballot to bolster public safety, would not be collected on federal retirement income or retirement income from the Oregon Public Employees Retirement System, county Assessor Jim Gangle said.

But the county would tax retirement income common in the private sector - 401(k) plans, employment-related pension plans, personal or real estate investments and other income, Gangle said.

Opponents of the proposed tax, who noticed the exemption in the measure's language, are starting to complain about the irony: County leaders and workers from the commissioners on down are pushing for a tax that would not touch their own state PERS retirement accounts once they retire.

Commissioner Bill Dwyer, board chairman, acknowledged the inequity. But the county's hands are tied, he said, by a long-standing Oregon statute that blocks county taxation of the retirement benefits of public employees.

The situation provides "a perfectly good excuse" to those who already plan to vote against the tax, Dwyer said. But the bigger question, he added, "is do you want to live in a safe community? This is the cost associated with doing it."

The commissioners want voters on Nov. 7 to approve a change to the Lane County charter that would authorize an income tax of up to 2 percent annually to pay for more officers, jail staff, prosecutors, specialists in drug-abuse treatment, prevention and more.

The tax would be collected from all of the county's 150,000 or so workers - public- and private-sector alike - excluding low-income earners. Also, Social Security would not be taxed.

But the picture changes for other retirement income.

About 12 percent of Lane County's 336,000 people are retirees. It's unclear how many of them would pay the income tax, because statistics aren't readily available to distinguish whether they worked in the private or public sector.

It's easier to show how many of today's workers would be required to pay the tax after they retire.

About 80 percent of Lane County's workers are in the private sector, in areas such as manufacturing, construction, trade, information, finance, health, transportation, leisure and hospitality. Many of them have "defined contribution" retirement plans such as a 401(k) plan, or "defined benefit" plans such as pensions.

If the tax is approved, these private-sector retirees would pay the tax on these sources of income, excluding low-income exemptions.

But workers in the public sector - the remaining 20 percent of the work force, including people in federal, state or local government, or education - would not pay the tax on income drawn from the PERS and federal retirement programs.

"I absolutely think that's unfair," said Steve Duffy, a 53-year-old business consultant from Eugene. …