The House Revenue and Tax committee this morning approved a bill to create a tax exemption for military retirement pay. The exemption would also apply to surviving spouses.
The $13 million tax cut is paid for by removing exemptions on unemployment compensation, a tax on digital downloads, and increasing the sales tax on candy and soft drinks. The digital download tax was added this week in place of the removal of a sales tax exemption on mobile homes, which proved politically untenable.
It must be noted that the tax hikes on unemployment compensation and digital downloads weren’t actually necessary to pay for the military retirement pay exemption. Those were included as pay-fors for an unrelated tax cut included in the bill’s package: a $6.3 million giveaway to the soft drink industry via a reduction in the wholesale-level tax on soft drink syrup. (See more on this below.)
Lt. Gov. Tim Griffin spoke for the bill. His ten-minute yarn sounded like a stump speech for his future run for governor. “Our tax code’s a mess from top to bottom,” he said. Griffin said that he would like to scrap the entire code and start over. After his speech, he took questions and said that, regarding the pay-fors, “I’m not the governor…most people know that I might do things a little differently.”
Rep. Kim Hendren supported the bill but raised the concern that college students and their families would end up being hit by the digital tax when they purchase books and supplies online. He complained that lobbyists for the manufactured housing industry had shifted the burden onto them. Hendren also noted that the legislature had rejected Rep. Warwick Sabin‘s earned-income tax credit bill, which would have been $10 million cheaper than the low-income tax cut it passed instead.
Rep. Michael John Gray raised a crucial point, noting that the bill has been larded up with another tax cut that has nothing to do with military retirement benefits. Gray asked why the bill also included a $6 million tax cut for the soft drink industry. That tax cut, Gray said, was “riding the coattails” of the more clearly popular and consensus idea of a tax cut for military retirement benefits. No one had a good answer.
Gray noted — a point confirmed by the Department of Finance and Administration — that the tax burden on soft drinks was being shifted onto consumers, while relief was provided for corporate interests in the soft drink industry.
He also noted — again confirmed by DFA — that the some of the pay-fors (tax increases!) really had nothing to do with the cost of the military retirement tax break. The soda and candy tax would pay for that on its own. The additional imposition of new taxes on unemployment benefits and digital downloads, Gray noted, is simply to pay for the giveaway to the soft drink industry.
The bill passed unanimously by a voice vote and will be on to the full House.