A Republican gubernatorial candidate in the overwhelmingly Democratic state of Maryland has told the state’s Fraternal Order of Police that he favors exempting police pensions from state income taxes. While the Maryland media, which is friendly towards current governor and presidential hopeful Martin O’Malley, opposes the idea, such legislation has its positives. I don’t say this only because my brothers and sisters in blue will benefit. The state could also be rewarded for adopting such legislation.
Proponents say the move would help stem the flood of retired officers leaving Maryland after they’ve completed their final tour of duty. The state’s benefits are obvious; Maryland would profit from pensions spent there, as well as other taxes routinely collected from retirees, like sales and property taxes.
The press accuses GOP nominee Larry Hogan of pandering to police in order to win their support. And while there’s little doubt that Hogan would like to snag Maryland’s law enforcement vote, the idea does have merit. With an average pension of about $30,200 for local police (as reported by the Baltimore Sun), local law enforcement retirees aren’t exactly living the high life. In an editorial opposing Hogan’s proposition, the Sun also makes the point that officers who retire on 20 to 25 years of service generally opt for a second, post-retirement career. That’s valid. The relatively high cost of living in that state (which is about 25 percent higher than the average) is on par with costly nearby states like New Jersey, New York, Massachusetts and Connecticut. Simply put: it’s cheaper to live in 75 percent of the country than it is to live in Maryland.
Let’s look a little closer at this. As I said, one study put the average local law enforcement retirement benefit at about $30,000 annually. Hardly a fortune, especially considering the demands of the job and cost of living in the Old Line State. The Sun editorial also asked, tongue in cheek, why legislators shouldn’t spread the benefit around and make firefighters’ pensions free from state income tax, too? Why not indeed? Like police, they also risk their lives on a daily basis for a pension that’s barely at subsistence level.
The professions of law enforcement and firefighting have relatively short shelf lives and, while it’s true that most retirees enter second careers post retirement, it’s also necessary. Living on such a paltry retirement can’t be easy.
Even critics admit Hogan’s proposal wouldn’t derail the state’s finances. Maryland ranks 25th in the nation in property tax rates and about average to above-average in the category of income tax (2 to 5.75 percent) and sales taxes (6 percent). And the idea of not taxing pension income isn’t a foreign one: 10 states exempt public pensions from taxation, while two exempt all pension income from income tax. Additionally, seven states do not have personal income taxes and two tax only interest income and dividends above a certain threshold. (For more information, see Tax-Rates.org.)
But the real question is why wouldn’t the state move to exempt police and firefighters’ pensions (military pensions has also been suggested) from state taxes. Sure, the state will lose a few million dollars, but weighed against the value of retaining useful residents who have dedicated their entire lives to public service by going into harm’s way when others would not or could not, they’re getting a bargain. And it’s a great recruiting tool for local and state law enforcement.
Will Maryland’s local law enforcement receive a break in their retirement pay? Realistically? Probably not. But if it did come to pass, it would be an excellent way to keep valuable citizens within its borders. Legislatures should consider this.
