Citizens filing IRS forms in 1920; by Underwood and Underwood photo, Library of Congress. Wikimedia Commons

By Elaine S. Povich, Stateline, Pew Charitable Trusts

About a half dozen states are considering giving new tax breaks to seniors over 65, although they already enjoy favorable treatment by the federal government and by most states on their income and property taxes.

For some of the states looking to cut taxes, it's an effort to stop older folks from decamping to more tax-friendly places when they retire. For others, it's a way for lawmakers to curry favor with one of the most politically plugged-in demographic groups, which also is the wealthiest.

"They are worth more, dollar-wise, than young people," said US Census Bureau spokesman Robert Bernstein.

Among the states looking at proposals this year are Iowa, Maine, Minnesota, Maryland and Rhode Island. Most would reduce or do away with state taxes on retirement income.

In Iowa, for instance, state Sen. Roby Smith's bill would phase out state taxation on retirement income over five years starting in fiscal 2017. Iowa already excludes the first $6,000 of retirement income from state income taxes ($12,000 for married couples) and all income for recipients of military retirement benefits. Smith's proposal would cost the state about $200 million a year.

Smith, a Republican, said the idea came to him when campaigning door-to-door last fall. "The No. 1 thing I heard at the doors … from retirees or soon-to-be retirees was 'don’t tax my pension,' " he said. Like many other states, Iowa does not tax Social Security income. Not taxing pensions or other retirement income is "the next logical thing," he said.

Smith represents Davenport, just across the border from Illinois, which does not tax pensions. "I have people who move across the river to avoid the pension tax," he said.

Moving to a "tax-friendly state" can be important to many seniors, who aren't wealthy and live on fixed incomes, or who are seeking to get the most from their retirement savings and pensions. Financial publications like Kiplinger' Retirement Report compares the taxes elderly residents face in every state. According to Kiplinger, Iowa is a "not tax friendly" state and Illinois has a "mixed" tax picture for retirees.

Maine is not a tax-friendly state, according to Kiplinger, and Republican Gov. Paul LePage wants to change that. He has proposed eliminating the state's income tax entirely. But if he can't do that, he'd like to exempt military pensions and up to $30,000 of other retirement income from income taxes. He has said cutting taxes on military pensions will help convince retired military personnel to stay or move to Maine.

LePage elicited laughter at a recent public forum when he pointed out that the tax was imposed by referendum during the tenure of former Democratic Gov. Kenneth Curtis, who now lives in Florida.

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