Retired vets might get tax break in S.C. Haley backs proposal, but cost a big concern

A bill in the South Carolina Senate could exempt military retirement pay for some 58,000 retirees in the state.

COLUMBIA — Current and future military retirees could see a state tax break as soon as next year unless its $36.7 million price tag scuttles it again.

The proposed bill, named the South Carolina Giving Back to Our Veterans Act, would phase in over three years an income tax exemption on the retirement benefits of an estimated 58,000 current military retirees.

Rep. Murrell Smith, R-Sumter, has tried twice before to get it approved, and he fears concerns over the cost could keep the bill stuck in the Senate Finance Committee, the same place his last bill died in 2014. He hopes other lawmakers will recognize that attracting more military retirees could offset some of the hit to state revenues. “The fiscal impact is probably less than what is projected once you take into account people will retire here, spend money here, pay property taxes and contribute to the economy,” said Smith, whose Sumter district includes Shaw Air Force Base.

Members of the armed forces who served 20 years on active duty or retired medically from those branches are eligible for military retirement pay. By exempting those benefits, Smith believes younger retirees will be drawn to jobs in South Carolina to supplement their retirement pay with a second career.

“We want to encourage people to retire here and enter our workforce,” Smith said. “I don’t think there’s any better pipeline of skilled workers than the military.”

At a meeting with 11 military base commanders located in the state, Gov. Nikki Haley said she would sign the bill, which the House approved unanimously in April, if it reaches her desk.

“We had $1 billion in new money last year and have $1.2 billion in new money this year,” Haley said at the S.C. Military Base Task Force meeting on Dec. 9. “I have told the Legislature over and over again: Send me that bill so I can sign.”

That added money is no guarantee the proposal will have a better chance of passing than in the past. The competition for funding is likely to be fierce in the upcoming legislative session, with hundreds of millions of dollars needed for improving roads and bridges, repairing flood damage to homes and dams and a court ruling ordering upgrades in poorer, rural school districts.

Smith’s bill would allow military retirees 65 and older to exempt their entire military pension from taxation; currently they can deduct only $10,000 and retirees under 65 can deduct only $3,000.

Another proposed change would allow military retirees to still claim the full $15,000 exemption for people 65 and older. Now, the $10,000 exemption on their military pension income counts against that.

The state’s military retiree population has continued to grow, with an influx of older retirees outpacing a decline in those under 65, according to Pentagon figures.

Reach Gavin Jackson at 843-708-1830.