CALIFORNIA MILITARY RETIREMENT TAX EXEMPTION PROPOSAL AIMED AT RETAINING MORE VETS
In most states, retirement income for military Veterans is exempt from taxation one way or another. However, for residents of California, this is not so—at least for now. Change is in the air and a proposed California military retirement tax exemption aimed at keeping more Veterans from leaving the Golden State is gaining traction. If it passes, retired Vets will keep more of their hard-earned benefits, increasing their income, and helping to offset the state’s high cost of living.
California Military Retirement Tax Exemption Could Help Veterans Increase Income
It hasn’t been for a lack of trying. There have been at least eight attempts to provide a California military retirement tax exemption to Veterans; however, it looks like the current proposal may be the one that finally gets the job done.
Every state in the U.S. except for Cali offers some sort of tax exemption on military retirement income. Supporters are aiming to have the Golden State join the party in an effort to retain more Veterans.
Notably, Veterans are of great value to our nation in a variety of ways, including their contributions as skilled labor. Keeping more Vets in Cali will help a wealth of industries and communities continue to thrive.
Assemblymember James Ramos (D-CA.) has reintroduced a bill to exempt up to $20,000 of federal military pensions for Veterans earning under $125,000 a year.
While it's not the full military retirement income exemption sought in 2024, the hope is that this version will find success in becoming law.
California is home to about 1.4 million Veterans, with around 10% of them receiving military retirement income and 26,000 receiving survivor benefits.
Ramos argues that keeping Vets in the state benefits California’s economy, as many continue working in other industries after military service.
With the Navy’s Pacific Fleet and thousands of Marines at Camp Pendleton, California remains a key hub for military retirees.
“They bring tested job expertise to our California workforce, they live in our communities and serve as volunteers and leaders. California can’t afford not to put out the welcome mat for our Veterans,” said Ramos.
Additionally, Sen. Kelly Seyarto (R-CA.) also introduced a similar measure with the goal of helping retired Vets.
Keeping More Military Retirees in the Golden State
Both bills introduced by opposite parties show bipartisan support for keeping military retirees in California.
The retired Veteran population is decreasing in California, as more and more opt to move outside of the state.
In fact, California is losing more retired Vets at a higher rate than anywhere else in the U.S., except for the District of Columbia in recent years.
The Cost of Living is Driving Out Vets
There are several reasons Vets may be leaving California, but one factor that is impossible to ignore is the state’s rising cost of living.
Veterans leave the state for many reasons, “but the primary factor is (the) cost of living,” David Boone, president of the San Diego Military Advisory Council, testified at a recent state tax and revenue committee hearing on Seyarto’s bill.
At a state tax and revenue committee hearing discussing Seyarto’s bill, the president of the San Diego Military Advisory Council David Boone said, “The states that are gaining Veterans have developed strategies to target and attract Veterans to their state.”
Each year, California provides around $29,000 military retirees, equaling around $4 billion annually, with $400 million going to survivors who qualify.
A California military retirement tax exemption would provide an average break of $600 per year, costing around $130 million in the next fiscal year, and $85 million annually afterward.
Despite this loss in tax revenue, proponents remain convinced that the impact on the economy is far greater, making the cuts justifiable.
Is the California Military Retirement Tax Exemption Going to Be Enough?
Even if California provides retired Veterans with a tax break, some believe that what’s being proposed simply isn’t enough to keep them from moving to states with friendlier financial circumstances.
Featuring a number of retirement and military communities, California has strong ties to Veterans, but there’s still a long way to go before making it a more competitive destination for some military retirees.
Furthermore, there is now also a debate on whether or not others working in professions that serve the public, including education, firefighting, and law endorsement, should also receive tax breaks.
The bill for Vets could set a precedent for other professions that not everyone is on board with, due to the notable loss in tax revenue.
As written by the Senate Committee on Revenue and Taxation, “If the Legislature exempts retirement income for one line of work that provides a direct benefit to the public, why should it not extend the same treatment for other commendable professions, such as teachers, firefighters, or police officers? This may lead to a slippery slope where retirement income from other professions is excluded from gross income, thereby eroding the income tax base.”
Of the 41 states with an income tax, 25 fully exempt military retirement income, while others offer partial exemptions.
Officials have stated that while the financial impact is small, exempting military pensions could improve Veterans’ perception of California, making it no longer the only state to tax military retirement income fully.
There's still a fight for the California military retirement exemption; however, both retirees and survivors receive exemptions on military death benefits, combat pay, and part of their property taxes.
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