Lawmakers to consider tax exemption expansions for military retirees

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Published: Jan. 31, 2022 at 9:35 PM EST|Updated: Mar. 3, 2022 at 10:41 AM EST
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COLUMBIA, S.C. (WIS) - By way of South Carolina’s several military installations — plus Fort Gordon, right across the border in Georgia — countless service members have called the Palmetto State home at some point during their years in uniform.

This week, state lawmakers will take up a pair of bills they hope would keep more veterans in South Carolina once they retire by reducing the taxes they pay on military retirement benefits.

In South Carolina, veterans currently receive a partial tax exemption on their military benefits, which they receive if they have served at least 20 years. But 35 other states, including North Carolina, Tennessee, and Florida have passed full exemptions, while Georgia, another partial-exemption state, is currently considering moving to a full exemption as well.

“Why can’t we just take this last, little step, get them that little bit of the cashback for them and their families, and so as they start to pursue their second job, they have that?” South Carolina Department of Veterans’ Affairs Secretary Will Grimsley said. “It’s a little bit of discretionary income that we know they’re going to put back in the South Carolina economy.”

Members of a House Ways and Means subcommittee will consider two bills during a meeting Thursday, H.4880 and H.3247, the Workforce Enhancement & Military Recognition Act.

Under H.3247 — sponsored by Ways and Means Committee Chair Murrell Smith, R – Sumter, Rep. Bobby Cox, R – Greenville, Rep. Steve Moss, R – Cherokee, and Rep. Richie Yow, R – Chesterfield — people younger than 65 would have their military retirement deduction capped at the amount they make in their current job in South Carolina. For example, if someone makes $50,000 in military retirement and $40,000 in their current job, they can only exempt $40,000 of retirement pay.

For those 65 and older, all military retirement income would be tax-deductible.

Under this proposal, there would be a gradual increase in deductions to the maximum amount over a five-year period.

According to a fiscal impact report, this increase in deductions would take about $13 million out of the state’s tax revenue each year once it is fully in effect.

Leaders with the SCDVA contend the money lost from tax revenue would be recouped within years as a result of the military retirees who would benefit from the cut.

“[They would be] back in the workforce, spending in our economy, building it up, investing,” SCDVA Director of Governmental Affairs Candace Terry said.

H.3247 is similar to bill filed in the Senate with bipartisan support, S.0217, which is sponsored by Sen. Thomas McElveen, D – Sumter, Sen. Tom Young, R – Aiken, Sen. Billy Garrett, R – McCormick, and Sen. Penry Gustafson, R – Kershaw.

The second House bill being discussed Thursday, H.4880, would make all military retirement income tax-deductible, regardless of age, and would fully go into effect after 2021 taxes.

That exemption is part of a larger bill — sponsored by House Majority Leader Gary Simrill, R – York, Speaker of the House Jay Lucas, R – Darlington, Speaker Pro Tempore Tommy Pope, R – York, Rep. Heather Ammons Crawford, R- Horry, and Smith — which would also cut the overall state income tax by 1%, from 7% to 6%.

There has not yet been a fiscal impact study published for H.4880.

“When a person is getting ready to separate from the military — I call it ‘progressing’ into the civilian community — and when we progress into the civilian community, that’s one of the first things that’s taken into account is, what is going to be the economic impact on my family or myself?” Retired Command Sergeant Major Lamont Christian said.

After serving more than 30 years in the U.S. Army, Christian, a native New Yorker, decided to start the next part of his life in South Carolina. He finished his military career at Fort Jackson, and factors including the state’s culture, climate, and proximity to beaches, mountains, and other cities kept him in the area.

Christian continues to serve, now as the director of the Warrior PATHH (Progressive and Alternative Training for Helping Heroes) program at the Big Red Barn Retreat in Blythewood, leading seven-day residential programs each month for veterans.

“Someone like me, after serving, whether it’s 20 years or 30 years as a noncommissioned officer, it would give me the opportunity to be able to use that additional income that normally would be taxed to invest,” Christian said. “Sometimes those investments could be something as simple as a veteran entrepreneur opportunity or maybe even my own children, pursuing some form of education or business of their own.”

While South Carolina is considered a top destination for veterans, the number of military retirees under the age of 65 in the state is decreasing, according to the SCDVA. Not having reached the retirement age for working, they are likely to take a new job and contribute to the workforce of the state where they decide to retire from their military careers, at a time when the entire nation, including South Carolina, is grappling with worker shortages.

Grimsley gave the example of a person who joined the Army at 18 and retired 20 years later.

“They’re 38 years old if they served 20 years,” he said. “Now, they’re going to go back into the workforce with 30-plus years of employability, very active, capable employability. That’s a fit, motivated, disciplined, well-trained, well-educated leader.”

Gov. Henry McMaster has placed military tax exemptions among his priorities each legislative session for the last several years, including this year.

Grimsley said he believes this could be the year the full exemption is passed because of the state’s strong financial situation, bolstered by the billions of dollars in lawmakers’ control from last year’s surplus revenue and money from the federal government.

“The conditions are right for it,” he said.

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