Jeffrey L Breiten, 3rd Vice-President. Legislative Affairs, CALMOAA
In light of California Governor Newsom’s proposed 2024 budget, State Legislators must pass AB 46, exemption of Military Retirement from State Income Taxes or risk losing even millions more in revenue in future budgets.
Here is some data taken off the DoD website that clearly lays out the millions of dollars being lost annually that AB 46 would reverse and actually add much needed millions of dollars to the state’s economy. Any loss reported by the State Finance Department would be offset and revenues actually increased, adding millions to the state’s budget.
No one disputes the fact that California is the only state in the nation that fails to provide an exemption on military retirement pay from state income taxes. No one disputes the fact that the military retiree population has experienced a steady decline dating back to 2010. During the same period the military retiree population actually grew by over 12% across the nation. What the California State Department of Finance continually fails to report, is how that decline in the state’s military retiree’s population continues to negatively impact California’s economy and budget.
In a letter dated June 30, 2023 addressed to California Senator Anthony Portantino, Congressmen Adam B. Schiff wrote” A single decade of exempting retired military pay alone from state taxation will help California and the country add thousands of jobs, millions of dollars in total personal income, billions of dollars in gross domestic or sate product, and even more in total business sales. State tax revenues are also expected to increase upwards of $28 million after factoring in the impact of implementation by 2025 through different revenue channels”.
Here is some data reported by the Department of Defense for your consideration;
The Office of the Actuary, U.S. Department of Defense publishes an annual report the “Statistical Report on the Military Retirement System” for each fiscal year. The most recent report was published on 10/06/2023 for fiscal year 2022. That report listed California as being home to 141,264 military retirees. The FY 2021 report military retiree population was 145,308 and the FY 2020 reported the population was 149,430. Going back to 2010 the report listed California’s military retiree population as 165,501. It is an indisputable fact that California’s military retiree population has experienced a steady decline dating back to 2010.
California is home to the largest active-duty military population and has more military installations than any other state in the nation. One would think after serving a tour in California and living and experiencing California’s climate, California would have one of the largest military retiree populations, which is not the case by far. An interesting fact is the total military retiree population reported by DoD is 1,998,452 which means that fewer than 7.5% of all military retirees choose California as the state they want to retire in, why? Those military retirees with critical defense industry skills are not even considering California as a state to retire in, why? According to U.S. Census Bureau estimates for July 1 2022 California is the nation’s most populous state, yet California is among the states with lowest number of military retirees and veterans, why?. Military retirees at a young age of 40 provide an experienced workforce for the state they retire in. Federal TRICARE funds provide millions of dollars annually to medical facilities in the state they retire in.
The FY 2022 Department of Defense Report on Defense Spending by State stated that DoD spending totaled $558.7 billon. The same report showed that DoD spending in California ($56.2 billon) was reduced by $1 billon from the previous year, while DoD spending in Virginia increased ($62.7 billon) and Texas ($58.0 billon) increased during the same period. Both Virginia and Texas provide exemptions from state income taxes on military retirement pay, and their military retiree population has increased, while California declined
California cannot afford for this trend to continue. Advancing AB 46 out of the Senate Appropriations Committee and sending on to Governor Newsom will help reverse this continued decline and loss of federal funds to other states.
I would like to try and personalize this with a factual military retiree and reinforce the negative impact on California’s economy each time a military retiree relocates to another state;
This military retiree receives an annual military retiree pension of $30,500.00 from the Defense Accounting Service. Upon his retirement from the military, he stayed in California (was raised in CA) , served 25 years as a member of a California Municipal Police Department, purchased 4 years of military credit and retired with 29 years of service. His CALPers pension of over $156,000 annually would be fully taxed under AB 46. After the Windfall tax that same retiree receives an annual Social Security pension of $9800.00 for a total retirement income of $196,300.00. He has considered moving to Prescott, Az over the years, based on the fact that his $30,500.00 military pension would be fully exempt from AZ State Income Taxes. Granted his CALPers ($156,000.00) would be fully taxed by AZ, although it would be a lower percentage. His comment after learning AB 46 was held in suspense file by the Senate Appropriation’s Committee was “that was the final straw” and made the decision to relocate to AZ and added ” at least Arizona recognizes the sacrifices a person makes while serving our country and appreciates our military retirees, I want to live where I am appreciated”.
At an 6% tax bracket California would only have realized an annual loss of $1830.00 on this person’s $30,500.00 military pension. California would have still collected $9360.00 from his CALPers pension of $156,000.00. Social Security is not taxed in California or Arizona. California’s failure to get AB 46 across the “goal line” now results in a loss next year of $11,190 on his income tax instead of just $1830.00 from military pension. Multiply that by the over 24,000 military retirees who have left California since 2010 and that is a loss of over $268 million from income taxes alone. Granted some military retires make more in their 2nd careers and some make less but I personally know of over a dozen whose income mirrors this individual. Now factor in that this person pays over $1200 annually to register his two vehicles in California, pays over $7500.00 in property taxes and Mello-Ross fees. Finally with a total income of $196,000 how much does he pay in local sales taxes along with using his TRICARE providing funding to local medical facilities. It does not take a math major to realize losing 24,000 military retirees to other states is costing California millions of dollars.
In closing one has to wonder how many of those 1.9 million military retirees never considered even retiring in California after reading articles such as those published in military magazines that rank California as the “worst state” in the nation for military retirees to consider retiring in. The Military Officers Association of America publishes a magazine with a circulation of over 350,000 and has repeatedly reported as California being the worst state for military retirees to settle in.
