U.S. Military (Ret.): Lack of COLA, state taxes chip away at pay - Military Retirement - Navy Times

U.S. Military (Ret.): Lack of COLA, state taxes chip away at pay

My past few columns about the effect of the Uniformed Services Former Spouses’ Protection Act on military retired pay generated lively discussion among readers.

But that law is hardly the only thing affecting our retired pay. Two broader issues are the annual cost-of-living adjustment — or lack thereof — and individual states reviewing their tax bases as the sluggish economy continues to eat away at their state budgets.

Twenty-one states are holding the line on not taxing military retired pay: Alabama, Alaska, Florida, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming.

Five others — Kentucky, Mississippi, Missouri, North Carolina and Oregon — also have tax-exempt policies, but with certain conditions.

Unfortunately, California, a large state whose lovely climate attracts many retirees, does tax retired pay, at 9.3 percent.

California retirees recently tried to get a bill through their state legislature to eliminate that tax, arguing that retirees are a net benefit to the state because they bring skills to the work force and will use federal, not state, assets for health care as they age.

The bill got some interest, but state lawmakers just could not bring themselves to give up $340 million in annual revenue.

When it comes to state taxes, at least retirees can choose where to live. But when it comes to our annual COLA, we all feel the pinch.

The final inflation figures for the fiscal year that just ended came in just before our deadline, and the news is bad — military retirees will see a second straight year of no COLA in 2011.

The Consumer Price Index, which measures the cost of a broad “market basket” of goods and services, hasn’t recovered from its recession-fueled plunge, and the inflation rate is still in negative territory compared with its previous peak.

A small bit of good news: inflation is expected to pick up next year, and the government predicts a 1.2 percent COLA for 2012. But that feels like a long way off.

Retired Command Master Chief Alex Keenan served 28 years in the Coast Guard. E-mail him at retired@atpco.com.