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‘Fiscal equivalent of a Russian assault’

Schapiro: Youngkin's costly frontal attack for veterans tax break

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NEW JEFF

Jeff Schapiro

‘Fiscal equivalent of a Russian assault’

Youngkin’s costly frontal attack for veterans tax break

BY JEFF E. SCHAPIRO

Richmond Times-Dispatch

Gov. Glenn Youngkin is selling generous tax cuts for Virginia military pensioners, some of whom collect six figures in retirement pay while simultaneously holding high-dollar civilian jobs, as a red-white-and-blue idea.

Skeptics see only red, worried that the proposal — embraced by Republican and Democratic lawmakers, alike — disproportionately rewards a small slice of the veteran population of more than 720,000 and will drain millions of dollars from state programs that make Virginia a magnet for military retirees.

Indeed, WalletHub, the personal finance website, last year rated Virginia — No. 2 in defense spending and home to the nation’s third-largest number of veterans, according to federal figures — the top state for military retirees, giving high marks to its economic environment, quality of life and health care system.

“When you’re No. 1, everybody wants to knock you off,” said Sen. Bryce Reeves, R-Spotsylvania, a former Army Ranger captain and a sponsor of the military pension tax break. Reeves, running for Congress in a defense-rich district in the outer D.C. suburbs, said a “red X” for Virginia is its policy of taxing veterans’ pensions.

Unlike Youngkin’s other goodies — doubling the standard deduction, erasing the grocery tax and suspending the fuel tax for three months — the veterans proposal has generated little controversy, though it would cost $287 million annually. That’s more than twice what the state spends each year on its 17 veterans programs.

Michael Dick, a retired Marine infantry colonel who was a lawyer in the U.S. Justice Department and heads a veterans legal aid program at the College of William and Mary Law School, said the hit to the budget is a major reason a state-created umbrella group of 21 veterans organizations didn’t include the pension exemption in its legislative wish list.

But it was fashioned before Republican Youngkin took office and a divided General Assembly was seated. Nor did it preclude member organizations from supporting the proposals. Among those backing it: the Fleet Reserve Association, an advocate for active-duty and retired Marine, Navy and Coast Guard personnel.

“Simply put, as a strategic matter, this proposal is the fiscal equivalent of a Russian assault on the state budget,” said Dick, chairman of the Virginia Board of Veterans Services, to which he was appointed in 2016 by the Democrat whom Youngkin narrowly defeated, former Gov. Terry McAuliffe. Dick has donated $12,500 to political candidates — all Democrats.

As with the rest of Youngkin $5 billion tax package, financed with record surpluses attributed to Virginia’s strong bounce-back from the coronavirus pandemic, the veterans proposal depends on a measure that continues to elude Richmond: the 2022-24 state budget, on which the House of Delegates, Virginia Senate and governor have yet to agree.

The military pension scheme would apply to retirees 55 and older, with the exemption increasing over four years from $10,000 to $40,000. It is less pricey than originally proposed, a plus for one of the Democrats who crafted a bipartisan compromise, Sen. Creigh Deeds of Bath.

He worried the cost would constantly increase, not unlike a tax-credit plan he won years back to promote the preservation of the Virginia countryside that then-House Speaker Bill Howell, R-Stafford, a trusts-and-estates lawyer, pressed to make more generous — until GOP budget writers insisted it be capped, complaining it was a subsidy for the wealthy.

Dick has a similar concern, noting that only one in five Virginia veterans would benefit from the tax exemption.

Twenty percent of veterans here are career military, collecting pensions that often represent 87% of the average of their three highest years salary and ensuring many of them, as pension publications note, more than a $1 million retirement savings. The remaining vets, approximately 80% of the ex-military population, weren’t in uniform long enough to qualify for a pension.

Credited for 28 years of service, Dick is eligible for about $90,000 a year, excluding health and other benefits. The state’s veterans and defense affairs secretary, Craig Crenshaw, is a retired Marine two-star general with more than 30 years on duty. His pension is driven by a salary that, according to U.S. Defense Department pay tables, was about $150,000. Crenshaw makes about $175,000 as a Cabinet secretary.

In an op-ed article April 6 in The Virginian-Pilot of Norfolk, Crenshaw echoed Youngkin’s claim from the 2021 campaign that friendlier tax provisions for veterans would draw more of them to Virginia, already a low-tax state, rated 34th overall by WalletHub.

But university studies in other states — in red Utah in 2017 and blue New Mexico in 2009 — said tax exemptions for military retirement pay aren’t make-or-break factors in a veteran’s decision where to live. The Virginia Division of Veteran Services noted these findings, saying exemptions “had not proven effective in states with large populations.”

Such doubts notwithstanding, veterans benefits have been a priority of both political parties here, an acknowledgement of the largess of the Pentagon, located in Northern Virginia, and an unwillingness by Democrats and Republicans to be seen as wimps on defense-related issues, especially when global tension means the U.S. military is in harm’s way.

Twenty-six states, including neighboring North Carolina, don’t tax the retirement benefits of former members of the armed services. Nine impose some taxes.

The remaining states with income taxes levy them on military pensions, but may provide other forms of relief. That includes three of the other four states that surround Virginia — West Virginia, Kentucky and Maryland — as well as Washington, D.C. Tennessee doesn’t have an income tax.

Virginia, which has wrestled in the state and federal courts and in the legislature since the late 1980s with the thorny issue of taxing the pensions of state, federal and military retirees, offers a mish-mash of tax breaks for active and former military.

They include for lower-paid active duty state residents a higher deduction on their Virginia income taxes and an exemption for disabled veterans from the locally imposed car tax. A particularly exclusive benefit: Medal of Honor winners do not have to pay state taxes on their retirement income.

The debate over tax relief for veterans, in contrast with the yowling over the standard deduction and Youngkin’s other higher-dollar notions, is more conversation than combat. That these giveaways should be considered as part of a larger examination of Virginia’s increasingly outdated tax system piques only a few politicians.

So it’s praise the Lord and pass the tax exemption.

Contact Jeff E. Schapiro at (804) 649-6814 or jschapiro@timesdispatch.com. Follow him on Facebook and on Twitter, @RTDSchapiro. Listen to his analysis 7:45 a.m. and 5:45 p.m. Friday on Radio IQ, 89.7 FM in Richmond and 89.1 FM in Roanoke, and in Norfolk on WHRV, 89.5 FM.

Contact Jeff E. Schapiro at (804) 649-6814 or jschapiro@timesdispatch.com. Follow him on Facebook and on Twitter, @RTDSchapiro. Listen to his analysis 7:45 a.m. and 5:45 p.m. Friday on Radio IQ, 89.7 FM in Richmond and 89.1 FM in Roanoke, and in Norfolk on WHRV, 89.5 FM.

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