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Schmidt announces plan to eliminate state tax on retirement benefits

Current AG hopes move will help keep retirees in Kansas
FILE PHOTO - Kansas Attorney General Derek Schmidt discusses a proposal that he's pushing with...
FILE PHOTO - Kansas Attorney General Derek Schmidt discusses a proposal that he's pushing with other Republicans to amend the state constitution to give the Legislature the power to overturn state agencies' administrative regulations, at a news conference, Tuesday, Feb. 23, 2021, at the Statehouse in Topeka, Kan. Behind him are Senate President Ty Masterson, left, R-Andover, and House Speaker Ron Ryckman Jr., right, R-Olathe.(AP Photo/John Hanna)
Updated: Jun. 22, 2022 at 1:15 PM CDT
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TOPEKA, Kan. (WIBW) - Kansas Attorney General and Republican Governor hopeful Derek Schmidt hopes to keep retirees in the state with a new plan to completely eliminate the state’s tax on retirement benefits.

Schmidt released details about his new “Retire Tax Free” plan on Wednesday, June 22.

“The Schmidt-Sawyer administration is going to focus every single day on growing Kansas, and if we’re going to do that we can’t keep losing retirees at such a high rate to other, more tax-friendly states,” Schmidt said. “To every retiree considering leaving Kansas after a lifetime of working and living here, we want you to stay. To every retiree in another state looking to move, come to Kansas. We’re going to give you another reason to remain or return to Kansas by helping you Retire Tax-Free.”

Schmidt said Kansas currently has one of the highest rates in America of residents who move out of the state. He cited surveys gathered by moving companies and data from the U.S. Census Bureau that show Kansas ranking 10th-worst in 2020 and 11th-worst in 2021 for outbound migration.

In 2021, Schmidt noted that Kansas lost about 5,200 residents. He also said a major cause of that outmigration is departing retirees.

Nationwide, Schmidt said retirement is the third-most-common reason to move away from a state - and that trend has accelerated. He said Kansans are more likely to leave the state after retirement and will take a lifetime of accumulated talent and wealth with them.

According to an annual report on migration, Schmidt said Kansans said the biggest reason they chose to leave the Sunflower State was retirement and the state’s high tax burden on retirees.

Another independent study indicates Kansas ranks as the third-worst state in the nation for tax burdens on retirees and is the least tax-friendly because of the combined burden of high income, sales and property taxes.

Schmidt said Kansas is one of only 13 states that do not completely exempt Social Security retirement benefits from state income tax.

The AG noted that his plan would provide relief to retirees who live on fixed incomes and struggle with both the rising costs of inflation and shrinking retirement investments due to market losses. He said it would also encourage more retirees of all income levels to remain in the state - or move to Kansas - rather than move to a different state.

Schmidt said ‘Retire Tax Free’ is an important first step toward an urgent need to grow the state’s population. He said Kansas finished the previous decade with its slowest population growth since the 1930s.

Schmidt indicated that Kansas also lags in recovering jobs destroyed by the COVID-19 pandemic and its required lockdowns. He said 76.6% of businesses recovered in Kansas compared to 96.3% nationwide.

Amid those more broad economic problems, Schmidt said the state’s poor ranking for taxing retirees persist.

“To have a brighter future, Kansas must grow. The ability to Retire Tax-Free in Kansas will grow Kansas and add to the civic capital of our communities,” Schmidt said. “Our state’s heavy tax burden is one of the significant obstacles to population growth and a significant reason so many Kansas retirees move away, taking with them their lifetime of talent, civic involvement, and savings.”

Schmidt said Kansas currently taxes all private retirement benefits and retirement savings distributions cut into by federal income tax. He also said Kansas taxes Social Security benefits of taxpayers who earn $75,000 or more.

However, the AG said military pensions - as well as federal and in-state government pensions - are exempt from state income taxes. He said the proposal would eliminate all state income tax on:

  • Social Security retirement benefits
  • Out-of-state public pensions
  • Private pension benefits
  • Defined benefit retirement plans
  • Defined contribution retirement plans like 401(k)s
  • Retirement annuities
  • Individual retirement accounts
  • Retirement plans maintained or contributed to by an employer, or maintained or contributed to by a self-employed person as an employer
  • Deferred compensation retirement plans or any earnings attributable to the deferred compensation plans

Schmidt said the plan would make the Sunflower State more competitive in its attraction of workers by not taxing pension benefits during retirement and also in retaining current and future retirees.

Nationwide, the AG said 12 states do not tax retirement income and Iowa is set to become the 13th. In the Midwest, he said Kansas would join South Dakota, Texas and Iowa in exempting all private retirement income from taxation. He said the state would also join six other regional states who exempt all Social Security income from taxation.

If effective in the 2023 tax year, Schmidt said exempting all Social Security income is estimated to provide about $32.5 million in relief, $109.2 million in 2024, and $112.5 million in 2025. He said fully exempting all private retirement income would provide about $69.9 million in relief in 2023, $233.8 million in 2024 and $236.1 million in 2025.

To keep the state budget and state services stable while the relief is implemented, and to avoid shifting the tax burden to other taxpayers, Schmidt said he would work closely with the Legislature to find a fiscally responsible approach to be able to achieve the Retire Tax-Free goal of full elimination.

However, the Kansas Democratic Party said Schmidt’s campaign has promoted falsehoods about Gov. Kelly’s economic policies in a desperate attempt to cover his tracks as Sam Brownback’s former top economic adviser.

“Derek Schmidt is grasping at straws and resorting to lies because he knows he can’t hide from his own track record of standing with Sam Brownback and the failed ‘tax experiment’ that tanked the state’s economy, raised taxes on Kansas families, and cut essential retirement funds for our seniors,” said Emma O’Brien, spokesperson for the KDP. “This desperate attempt to run from his own record is nothing more than an election-year gimmick, and Kansans aren’t falling for it.”

Gov. Kelly echoed the KDP’s sentiments.

“Just like a typical politician, Derek Schmidt will say or do anything during an election year, but his real record shows that he’ll take us back to the Brownback era of fiscal irresponsibility and underfunded schools. In fact, now he’s even using a partisan website led by Brownback’s top economic advisor to mislead Kansans about Governor Kelly’s successful record of working with both parties to balance the budget and make life more affordable for seniors by axing the food tax and cutting property taxes.”

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