Opinion: New Mexico should expand tax relief for retirees

New Mexico is having an important conversation about tax relief. Recent opinion pieces have debated whether the state should eliminate the personal income tax or preserve it to protect revenues and targeted tax credits. Differing viewpoints begin with the same reality: New Mexico is in a strong financial position. If the Legislature is reluctant to eliminate the personal income tax entirely, New Mexico should use a portion of its strong revenues to provide meaningful, permanent income-tax relief for retirees and make our state more competitive with its neighbors. Today, New Mexico offers taxpayers 65 and older an exemption of up to $8,000, depending on income. This exemption is modest compared with the treatment retirees can receive in surrounding states. Colorado provides substantially more retirement relief. Taxpayers 65 and older may generally subtract up to $24,000 of pension and annuity income from Colorado taxable income. Those ages 55 through 64 may generally subtract up to $20,000. For taxpayers 65 and older, Colorado also allows the entire amount of Social Security benefits included in federal taxable income to be subtracted from Colorado taxable income. Arizona taxes private pension income, but it completely excludes Social Security retirement benefits from Arizona income tax. It also provides limited exclusions for certain Arizona government, federal government pensions and military retirement pay. Texas has no individual income tax at all. Retiree pensions, individual retirement account distributions and Social Security benefits are not taxed. Although New Mexico has improved its tax treatment of Social Security, the exemption is limited by income: Working seniors and retirees above the thresholds still face New Mexico tax on Social Security income that Colorado exempts for taxpayers 65 and older and that Arizona and Texas do not tax at all. New Mexico is competing with Texas, Arizona and Colorado not only to attract retirees, but to keep New Mexicans from taking their retirement income — and their spending — to neighboring states. Taxes on retirement income matter when retirees decide where to live. Retirees bring stable income into a state's economy through pensions, Social Security and retirement savings. They buy homes, shop at local businesses, pay property and gross receipts taxes, volunteer in their communities and support local services. Just as important, New Mexico should not make it financially harder for people who spent their careers, raised their families and built their lives here to remain in the state they call home after retirement. For most retirees, a pension is not extra income, it is the paycheck they earned over a lifetime of work. As property taxes, utilities, groceries and healthcare costs rise, taxing their fixed retirement income makes it harder for longtime New Mexicans to maintain the financial security they worked to achieve. New Mexico should exempt up to $50,000 of pension income from state income tax for retirees, without an income cap. This would provide straightforward, meaningful relief. It would recognize that pension income represents decades of work, service and earned benefits, while allowing retirees to keep more of that money circulating in New Mexico communities. The Legislature should also finish the job on Social Security by eliminating the current income limits and exempting the benefits for all New Mexicans. New Mexico does not have to eliminate its personal income tax to become competitive. With historically strong state revenues, now is the time to make New Mexico a more affordable and competitive place not only to work and raise a family, but to retire — and remain retired — right here at home. Lee Caruana is vice president of Retired Public Employees of New Mexico.