State, federal retiree income would be exempt under bill

All pensions for state and federal retirees would be exempt from North Carolina income tax under a proposal that cleared the House Government Committee Thursday. Currently, retirees pay different tax rates depending on when their pensions vested.

Posted 3:00 p.m. Mar 21, 2013 — Updated 3:41 p.m. Mar 21, 2013

Mark Binker

RALEIGH, N.C. — North Carolina would exempt government retiree pensions from income tax under a bill that cleared the House Government Committee Thursday morning.

House Bill 96 would apply to North Carolina and federal retirees who live in the state. The measure would also grant exemptions to retirees from other state governments, consistent with how those states would treat North Carolina retirees.

Currently, retirees are treated differently depending on when their retirement vested, or became money they couldn't lose under normal circumstances. Pensions that vested before August 1989 are exempt from North Carolina income tax due to a pair of court rulings, including the Bailey case. Pensions that vested after August 1989 qualify for up to a $4,000 deduction.

Under House Bill 96, which is sponsored by Rep. George Cleveland, R-Onslow, and Rep. James Boles, R-Moore, the complete exemption for retiree income would be phased in over the next 10 years, through Jan. 1, 2022.

A representative of the State Employees Association of North Carolina said his group supports the bill.

A handful of lawmakers voted against the measure when it passed the committee on a voice vote.

"This is a revenue loss the General Assembly can't afford," said Rep. Paul Luebke, D-Durham. He said the state was already cutting programs due to sluggish revenue growth. This, he said, would exacerbate that problem.

The measure next goes to the House Finance Committee.

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