Brandon J. Archuleta
Archuleta, Ph.D., is an adjunct senior fellow for military, veterans and society at the Center for a New American Security in Washington, D.C., and author of โTwenty Years of Service: The Politics of Military Pension Policy and the Long Road to Reform.โ He is originally from Los Angeles and entered the U.S. military while in California in 2001. The views expressed here are those of the author and do not necessarily reflect the policy or position of the Department of Defense or U.S. government.
With the stateโs populationย decliningย in recent years, military retirees are an industrious group of citizens that California can ill afford to lose. As a California native and expert on military retirement policy, I believe exempting military pensions from state income taxes is one way to help address this problem.
Actuarial reportsย from the Department of Defense reveal a 14 percent decrease in the number of military retirees residing in California from 2010 to 2021. In contrast, Florida saw a 13 percent increase over the same period. Meanwhile, Texas experienced an 18 percent growth in its population of military retirees. The financial websiteย Wallethubย recently ranked California dead last in โeconomic environmentโ for military retirees and among the worst states in the country for military retirement overall. This is an embarrassment for the state and should be unacceptable to citizens and lawmakers alike.
Thankfully, the Legislature is currently consideringย Assembly Bill 46,ย byย Assemblymember James C.ย Ramos,ย D-San Bernardino, and several co-sponsors, which would carve out a decade-long tax exclusion for military pensions (2024 to 2034) and require the California Department of Veterans Affairs and the Franchise Tax Board to track โdetailed performance indicators for the Legislature to use in determining whether the exclusions meet the goals, purposes and objectivesโ of the legislation.
The intent behind Assembly Bill 46 is twofold. First, it is an expression of the stateโs โgratitudeโ โ from both policymakers and voters โ for military retirees and their families for their decades of service to the nation. Second, the bill aims to attract and retain motivated, talented and skilled individuals for Californiaโs vast labor market. Assembly Bill 46 passed the Assemblyย 77-0ย in May and theย Senate Committee on Military and Veterans Affairsย (which, in full disclosure, my father,ย Sen. Bob Archuleta, D-Pico Rivera, chairs) in July.
According to the Pentagon, there were 145,308 military retirees residing in California as of 2021 (the most recent year for whichย dataย are available), with an average service pension of $2,465 per month, or $29,580 annually. As I describe in myย book, most military retirees are eligible for aย defined-benefit pensionย after 20 years of service.ย Criticsย argue that a military tax exclusion amounts to a windfall for working-age military retirees at the expense of state coffers. Whileย bill analyses estimate that exempting military retirement income from state taxes would result in a modest decline in tax revenue in the near-term, a 2018ย studyย by the San Diego Military Advisory Council suggests that โending military pension taxation would yield significant benefits … in terms of jobs, total personal income, gross state product and total business sales.โ
To be clear, this bill is not a handout. For example, a 40-year-oldย E-6ย (e.g., a staff sergeant, technical sergeant or petty officer first class) who retires from active duty in August after 20 years of service would receive approximately $2,200 a month in pension benefits, or $26,400 annually โ hardly a golden parachute. Thus, it is reasonable for legislators to expect another 25-plus years of in-state economic productivity from working-age military retirees.
By attracting and retaining highly skilled military retirees for California, we will be counting on them to contribute to our workforce, grow our economy, raise their families, and, of course, pay state taxes on their primary, post-retirement incomes. Californians, like all Americans, have a moral obligation to care for those among us who have served and sacrificed so much in defense of the nation. Assembly Bill 46 will help us fulfill that obligation.
