Newspaper article THE JOURNAL RECORD

Walters Recommends Cutgting Retiree Tax Exemption

Newspaper article THE JOURNAL RECORD

Walters Recommends Cutgting Retiree Tax Exemption

Article excerpt

Journal Record Staff Reporter

Gov. David Walters' 1994 budget will recommend eliminating the state income tax exemption for federal and state retirees, he said Friday at a news conference.

Federal and state retirees in Oklahoma get $5,500 of their retirement pay exempted annually.

The move would save the state some $23 million per year, Walters estimated. He proposed plowing $12 million of that amount back into raising the state retirees' benefits, to offset the income tax. For the remaining $11 million, "I'm leaning toward taking the balance of that money for a pay plan for state employees," he said.

Jack White, state finance director, said the maximum impact of the action would be about 2.5 percent per individual. Walters said the impact would be about $225 per individual.

"This makes a lot of sense, but I don't think it's going to be politically popular," he said. "It is clear to us we should not be spending state resources to take care of federal retirees."

The issue is rooted in a 1989 U.S. Supreme Court decision that prohibited differing state tax exemptions for state and federal pensions. At the time, Oklahoma law exempted all state retirement benefits from state income tax payments, while allowing federal civil service employees a $4,000 exemption. The state later changed its law to exempt $5,500 for all state and federal retirees.

Last September the Oklahoma Supreme Court ruled in favor of six federal retirees who sued, claiming their pensions were illegally taxed from 1985 through 1988, and held they are due refunds. The Oklahoma Tax Commission estimates the refunds on 58,450 claims filed by other federal retirees would cost $36 million.

According to a press release from Walters, he, legislators and state budget officials fear the $36 million will have to be spent next fiscal year if the Oklahoma Supreme Court rules retroactive refunds must be paid to everyone who claimed them, rather than just the six who sued. …

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