The Pension Problem

[Steel Rain]

Well, as far as Illinois goes, I'm hoping they delay as long as possible since I'm doing everything I can to leave this forsaken state. I don't want my taxes raised to pay for this BS before I have a change to leave.

Steel

[youbet]

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Originally Posted by Steel Rain Well, as far as Illinois goes, I'm hoping they delay as long as possible since I'm doing everything I can to leave this forsaken state. I don't want my taxes raised to pay for this BS before I have a change to leave. Steel

There haven't been any proposals of tax increases in regard to fixing the pension problem, although you never know what could pop out of the talks in the future. So far it has involved current employees paying more and reduced pension benefits for new hires, current employees and retirees. It seems to just be a matter of coming to an agreement on how to spread the pain among the employees.

But, I agree with you on leaving. I have a touchy family situation involving a special needs grandson (cerebral palsy) who needs my DW's help or we'd be out of here like a speeding bullet. The culture of corruption and dishonesty of Da Machine gives me an acid stomach.

[golfnut]

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Originally Posted by youbet There haven't been any proposals of tax increases in regard to fixing the pension problem, although you never know what could pop out of the talks in the future. So far it has involved current employees paying more and reduced pension benefits for new hires, current employees and retirees. It seems to just be a matter of coming to an agreement on how to spread the pain among the employees. But, I agree with you on leaving. I have a touchy family situation involving a special needs grandson (cerebral palsy) who needs my DW's help or we'd be out of here like a speeding bullet. The culture of corruption and dishonesty of Da Machine gives me an acid stomach.

+1 o the acid stomach. I'd be out of here if it wasn't for the dw.

[Steel Rain]

Well, given the history of the state, major tax increases are inevitable. I figure I am stuck here for at least 5 more years till i can ER and bail. I'm really hoping the improving economy masks the issues long enough for me to avoid any more harm to my plan from taxes

Steel

[youbet]

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Originally Posted by Steel Rain Well, given the history of the state, major tax increases are inevitable. I figure I am stuck here for at least 5 more years till i can ER and bail. I'm really hoping the improving economy masks the issues long enough for me to avoid any more harm to my plan from taxes Steel

I don't know about that. If you're referring to the state income tax, we just had a "temporary" 67% increase from 3% to 5% flat and I hear more talk about rolling that back on schedule than about extending it. Let alone moving upwards from 5%. But, again, you never know.

My prediction (worth exactly what you're paying for it) is that the pension problem will be "solved" by having employees (current and retirees) pay more and get less and will not involve a tax increase. There seems to be some party infighting (the Illinois equivalent of fighting between two parties in two party states but we just have one party) and I don't think either side wants to mention raising income taxes again.

I think we're more likely to see services deteriorate even more and the riff between NE Illinois and downstate intensify. (They are two extremely different cultures.)

When "the deciders" finally figure out how they want to apportion the pain among the state employees and retirees and get pension funding more or less solved, there will be a brief lull in the spending action followed by a renewed spending spree that will quickly drag the state back into new depths of financial depravity. State legislators are much more concerned about getting their share of the new spending that will occur once the pension mess is fixed than they are about actually getting the pension mess fixed. That's why it's taking so long.

[Mulligan]

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Originally Posted by youbet I don't know about that. If you're referring to the state income tax, we just had a "temporary" 67% increase from 3% to 5% flat and I hear more talk about rolling that back on schedule than about extending it. Let alone moving upwards from 5%. But, again, you never know. My prediction (worth exactly what you're paying for it) is that the pension problem will be "solved" by having employees (current and retirees) pay more and get less and will not involve a tax increase. There seems to be some party infighting (the Illinois equivalent of fighting between two parties in two party states but we just have one party) and I don't think either side wants to mention raising income taxes again. I think we're more likely to see services deteriorate even more and the riff between NE Illinois and downstate intensify. (They are two extremely different cultures.) When "the deciders" finally figure out how they want to apportion the pain among the state employees and retirees and get pension funding more or less solved, there will be a brief lull in the spending action followed by a renewed spending spree that will quickly drag the state back into new depths of financial depravity. State legislators are much more concerned about getting their share of the new spending that will occur once the pension mess is fixed than they are about actually getting the pension mess fixed. That's why it's taking so long.

I was reading in the STL Post today that the Illinois legislatures are looking at having a graduated income tax. Undoubtably some probing to see if they can get the base rate back for lower incomes, yet able to continue bringing in the additional dollars. The paper mentioned that many states do have graduated levels including MO. What I found humorous was they neglected to mention Mo's "graduated level" ends at under a $1000 income. Unindexed from inflation since the 1930s I believe. I am surprised Illinois hasn't considered taxing public pensions as income. Very few states have that total exemption. They could tax the pensions as income to help pay for the pensions.

[ERD50]

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Originally Posted by Mulligan I was reading in the STL Post today that the Illinois legislatures are looking at having a graduated income tax. Undoubtably some probing to see if they can get the base rate back for lower incomes, yet able to continue bringing in the additional dollars.

Yes, but a flat tax is in the IL Constition, not easy to change:

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Illinois’ constitution mandates a flat income tax rate across all income levels. To change that, both chambers of the Legislature would have to pass a resolution by a three-fifths vote to put a measure on the ballot asking voters to amend the constitution. That ballot question would then need to be approved by either three-fifths of those voting on the measure or the majority of those voting in the election.

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They could tax the pensions as income to help pay for the pensions.

Economic Perpetual Motion! But seriously, it certainly could happen, don't know if there is any constitutional restriction or not - it might even be considered under the constitution clause that benefits cannot be reduced?

-ERD50

[JoeWras]

My mom was on one of the citizens committees for the current Constitution. Growing up in the 70's and having those mandatory civics classes, I could proudly claim to my classmates how we are all part of the process. After all, my mom participated in our current (then new) Constitution!

Now... cough... I'm not so proud. I keep hearing time and time again about the Constitutional blocks to certain solutions. Now I just tell myself that Mom was many of thousands of citizens in some stupid meeting that just rubber stamped what the lawyers and da machine goons Representatives presented.

[ERD50]

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Originally Posted by JoeWras My mom was on one of the citizens committees for the current Constitution. ... Now... cough... I'm not so proud.

I think you should still be proud, heck, very proud. Even if, and maybe this could only be seen in hind-sight, some of those changes ended up causing problems down the road, it was done by an agreed upon process. The changes had to be approved by those majorities.

And if needed, they can be changed again. That's the process. I think it's admirable that your mother was an active part of that process.

-ERD50

[JoeWras]

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Originally Posted by ERD50 I think you should still be proud, heck, very proud. Even if, and maybe this could only be seen in hind-sight, some of those changes ended up causing problems down the road, it was done by an agreed upon process. The changes had to be approved by those majorities. And if needed, they can be changed again. That's the process. I think it's admirable that your mother was an active part of that process. -ERD50

Yeah, you're right.

It was interesting. She used to have a set of booklets of various revisions of the constitution with strikethrus and revisions and such. It was fun to read.

I'm also not sure how many States have tried to do this in recent history. Illinois used to do a lot of things very proudly. That's what is so distressing with the latest turn of events. There's not much to be proud of.

[youbet]

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Originally Posted by Mulligan I was reading in the STL Post today that the Illinois legislatures are looking at having a graduated income tax. Undoubtably some probing to see if they can get the base rate back for lower incomes, yet able to continue bringing in the additional dollars. The paper mentioned that many states do have graduated levels including MO. What I found humorous was they neglected to mention Mo's "graduated level" ends at under a $1000 income. Unindexed from inflation since the 1930s I believe. I am surprised Illinois hasn't considered taxing public pensions as income. Very few states have that total exemption. They could tax the pensions as income to help pay for the pensions.

Yes, I have read from numerous sources that a graduated income tax (as opposed to an increase in the current 5% flat tax) is being considered. That option has been put forth a number of times over the years as a revenue generator in general, not just for the current pension situation. It appears to be a more complicated change than a flat tax increase.

Illinois is not just considering taxing public pensions, they're looking at taxing all "retirement" income currently not being taxed. This would include all or some of the following which are not currently taxed:

Pensions (regardless of source)
SS
TIRA withdrawals
TIRA to Roth conversions
401k / 403b withdrawals (and any similar deferred tax "retirement" plan)

There may be some more not popping into my mind at the moment. Illinois, in terms of income tax, is actually fairly retiree friendly as the rules now stand. We may see initiatives to change that.

But, none of the several "solutions" that were introduced as legislation in either house before they adjourned contained any tax increases such as increasing the flat tax, going to a graduated tax or taxing retirement income not taxed currently. The special committee, now working on the issue post-adjournment and behind closed doors, may be more inclined to take the political risk of suggesting more revenue......... or not.

[BLS53]

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Originally Posted by youbet Yes, I have read from numerous sources that a graduated income tax (as opposed to an increase in the current 5% flat tax) is being considered. That option has been put forth a number of times over the years as a revenue generator in general, not just for the current pension situation. It appears to be a more complicated change than a flat tax increase. Illinois is not just considering taxing public pensions, they're looking at taxing all "retirement" income currently not being taxed. This would include all or some of the following which are not currently taxed: Pensions (regardless of source) SS TIRA withdrawals TIRA to Roth conversions 401k / 403b withdrawals (and any similar deferred tax "retirement" plan) There may be some more not popping into my mind at the moment. Illinois, in terms of income tax, is actually fairly retiree friendly as the rules now stand. We may see initiatives to change that. But, none of the several "solutions" that were introduced as legislation in either house before they adjourned contained any tax increases such as increasing the flat tax, going to a graduated tax or taxing retirement income not taxed currently. The special committee, now working on the issue post-adjournment and behind closed doors, may be more inclined to take the political risk of suggesting more revenue......... or not.

I've just spent 30 minutes on Google looking for information concerning proposals in Illinois to tax pensions and SS. The most I came up with was an idea submitted by some legislator named Cullerton in March of 2011:

Clout St: Illinois Senate president wants to look at taxing retirement income

The article is vague, and not as near in detail as what you've described here. Any updated information with links would be appreciated. This is an issue that would affect my budget considerably.

[youbet]

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Originally Posted by BLS53 I've just spent 30 minutes on Google looking for information concerning proposals in Illinois to tax pensions and SS. The most I came up with was an idea submitted by some legislator named Cullerton in March of 2011: Clout St: Illinois Senate president wants to look at taxing retirement income The article is vague, and not as near in detail as what you've described here. Any updated information with links would be appreciated. This is an issue that would affect my budget considerably.

Good question.

Please note that my comments did not say that taxing retirement income legislation was or was not going to happen. I said that I don't see it as part of any of the pension fixing legislation that was introduced in the last legislative session......... If it's there, I missed it.

My point to Mulligan was in response to his comment that he read, in a Mo newspaper, the suggestion that Illinois tax "public pensions." Anything I've seen or heard in the past referred to taxing retirement income (not just "public pensions.") And currently the retirement income that's exempt in Illinois are the categories I listed above. But perhaps, if the change ever comes to be, only some of the categories of retirement income will be affected.

Having Illinois tax retirement income would have a significant impact on my plans too. Most of our income is currently exempt from tax in Illinois.

Here ya go. This is what the Teachers Retirement System thinks about the possibility of retirement income being taxed as part of any pension funding fix.

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Legislative leaders have discussed changing the law to extend the income tax to pensions and all retirement income.

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TRS has not seen any specific language so it is difficult to analyze the concept. However, it is likely that extending the income tax to retirement income would be challenged in court. Taxing pensions and retirement income also will be very difficult to pass in the legislature because seniors are a large, active group of voters and they do go to the polls.

Teachers' Retirement System of the State of Illinois

[harley]

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Originally Posted by JoeWras My mom was on one of the citizens committees for the current Constitution. Growing up in the 70's and having those mandatory civics classes, I could proudly claim to my classmates how we are all part of the process. After all, my mom participated in our current (then new) Constitution! Now... cough... I'm not so proud. I keep hearing time and time again about the Constitutional blocks to certain solutions. Now I just tell myself that Mom was many of thousands of citizens in some stupid meeting that just rubber stamped what the lawyers and da machine goons Representatives presented.

Personally, I'm not sure that the constitutional blocks to certain solutions is a problem. I doubt very much that the people (including your mom) that worked on the Constitution were able to consider what decades of con men and criminals politicians would have done to bypass legality, sanity and common sense. And even now the blocks might be stopping even worse solutions from being implemented. Maybe being forced to stop and think real hard before implementing a solution will result in actually solving a problem this time.

[Mulligan]

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Originally Posted by youbet Good question. Please note that my comments did not say that taxing retirement income legislation was or was not going to happen. I said that I don't see it as part of any of the pension fixing legislation that was introduced in the last legislative session......... If it's there, I missed it. My point to Mulligan was in response to his comment that he read, in a Mo newspaper, the suggestion that Illinois tax "public pensions." Anything I've seen or heard in the past referred to taxing retirement income (not just "public pensions.") And currently the retirement income that's exempt in Illinois are the categories I listed above. But perhaps, if the change ever comes to be, only some of the categories of retirement income will be affected. Having Illinois tax retirement income would have a significant impact on my plans too. Most of our income is currently exempt from tax in Illinois. Here ya go. This is what the Teachers Retirement System thinks about the possibility of retirement income being taxed as part of any pension funding fix. Teachers' Retirement System of the State of Illinois

I might have combined the two. The paper mentioned the graduated tax, I was just wondering myself if taxing pensions was an option. I agree,Youbet, for an early retiree the pension benefit seems very generous. I am assuming the pension contribution from employee is tax free, then you get the distribution tax free also. Seems a little unfair to the 401k club (I am a pensioner). I could move 30 miles and cross the border and save 3k in taxes immediately by living in Illinois. I am sure they will get you some other way, but all you have to do is buy your groceries and gas across the river and you mostly get the best of both worlds. It seems awfully generous for Illinois not only to not tax public pensions, but also not tax ones from out of state pensioners who move into state.

[youbet]

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Originally Posted by Mulligan I am assuming the pension contribution from employee is tax free, then you get the distribution tax free also. Seems a little unfair to the 401k club (I am a pensioner).

I think you're still missing my point. Illinois taxes NO retirement income including 401k distributions, IRA withdrawals and Roth conversions, private pensions, etc. There is nothing "unfair" going on in regard to 401k's. Now, whether Illinois can afford to not tax retirement income is a completely different story!

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I am sure they will get you some other way

Why yes, yes they do!

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It seems awfully generous for Illinois not only to not tax public pensions, but also not tax ones from out of state pensioners who move into state.

Again, Illinois does not tax PRIVATE pensions. And, yes, someone from out of state whose retirement income is from pensions, SS and IRA withdrawals can move to Illinois and pay no state income tax. They can also move to hell and not have to worry about a winter heating bill..........

Note: I am not a tax expert. The above is what I believe to be true based on doing my own taxes. Any necessary corrections appreciated.

[JoeWras]

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Originally Posted by youbet believe to be true based on doing my own taxes. Any necessary corrections appreciated.

It correlates with my experience. My Dad's pension (not public) is not taxed. This really surprised me.

I don't want to talk about his property tax bill though...

[Mulligan]

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Originally Posted by youbet I think you're still missing my point. Illinois taxes NO retirement income including 401k distributions, IRA withdrawals and Roth conversions, private pensions, etc. There is nothing "unfair" going on in regard to 401k's. Now, whether Illinois can afford to not tax retirement income is a completely different story! Why yes, yes they do! Again, Illinois does not tax PRIVATE pensions. And, yes, someone from out of state whose retirement income is from pensions, SS and IRA withdrawals can move to Illinois and pay no state income tax. They can also move to hell and not have to worry about a winter heating bill.......... Note: I am not a tax expert. The above is what I believe to be true based on doing my own taxes. Any necessary corrections appreciated.

Yes, sorry, I was missing it. I had read about all pensions being untaxed in the state. It didn't mention the other forms of retirement income, so that was leading me astray. It is very interesting when comparing all the states and their tax treatment of pensions/SS/401K's etc. Very much a quilt work.

[youbet]

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Originally Posted by Mulligan Yes, sorry, I was missing it. I had read about all pensions being untaxed in the state. It didn't mention the other forms of retirement income, so that was leading me astray. It is very interesting when comparing all the states and their tax treatment of pensions/SS/401K's etc. Very much a quilt work.

Yes, the ways in which states come up with revenue are all over the board.

For retirees whose income is primarily pension, SS, IRA/401k distributions and other "retirement income," the Illinois state income tax code is very favorable. Even for the extremely wealthy.

[ERD50]

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Originally Posted by youbet ... For retirees whose income is primarily pension, SS, IRA/401k distributions and other "retirement income," the Illinois state income tax code is very favorable. Even for the extremely wealthy.

Shhhhhh! Gov Quinn may be listening! We don't want him coming after our retirement money!

Mostly kidding, of course. While I want to protect my self-interests as much as the next guy, if that has to be part of the 'shared pain', so be it.

-ERD50