Editorial: Proposed tax break for vets goes too far

Raise the tax credit for combat service instead.

Last update: November 19, 2007 - 5:47 PM

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HEY, SOLDIER

Minnesota taxes military pension income; Wisconsin does not. So a larger share of Wisconsin's population should be retired soldiers, right? Wrong: 0.32 percent of both states' populations are military retirees. The state with the largest share of former career soldiers in its ranks, Virginia, taxes military pension income the same way Minnesota does.

Source: Minnesota House research.

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Gov. Tim Pawlenty is among the best friends military veterans ever had at the State Capitol -- and he's had to go quite a distance to earn that distinction. Through the decades, many other governors and legislators have shown great willingness to, as Pawlenty puts it, "say thank you by our actions" -- usually actions with dollar signs attached.

That's an understandable political impulse, particularly now, with the war in Iraq grinding on and the number of veterans growing. It likely explains why there wasn't an audible dissent last week when Pawlenty unveiled a $51 million veterans benefits package as his Priority No. 1 for the 2008 legislative session. Its biggest item: a 100 percent exemption from state income taxes for military pay and pensions, projected to skim $25 million per year off state revenues by 2012.

The silence has to mean that even the Legislature's tax specialists, who know how unadvisable the pension exclusion is, are opting for the political safety of reticence. They may be thinking that the bad tax policy the governor is proposing will slide off the 2008 session's table of its own supersized weight if the next revenue forecast, due out next week, shows the state budget's balance shrinking.

Why is it wrong to reward military service to this country with freedom from state income taxes? Because a sound, sustainable income tax is one that falls on all earners of all kinds of income. A broad tax base makes possible a low tax rate, and promotes the twin virtues of fairness and accountability -- both essential to preserving the "consent of the governed" necessary in a democracy.

Start carving out exemptions -- in this case, to reward service and to lure military retirees to this state -- and the carving can go on indefinitely. Why not exempt police and firefighter pensions? They, too, put their lives on the line in public service. Why not spare high-technology engineers and bioscience researchers from taxation? They, too, are people Minnesota wants to attract. How about a tax reward for science teachers, or rural doctors, or longtime legislators? The possibilities would be limited only by what politicians think the people paying higher taxes as a result won't notice, or mind.

At least twice before, legislators have considered and quietly rejected Pawlenty's proposals to exempt military pensions from taxation. In 2006, they opted instead for a refundable tax credit -- $59 for each month of service in a combat zone after Sept. 11, 2001.

An increase in that credit to $120 per month was part of the tax bill Pawlenty vetoed in May, for unrelated reasons. It should come back in 2008, as an alternative to a pension exclusion. That might still displease tax policy purists. But we think future governors, legislators, and taxpayers will be grateful for that choice.

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