California must stop taxing veterans on their military retirement income

Everyone wants to live in the Golden State and especially “Sunny” San Diego. From the warm coastal beaches, white snow-capped mountains, and grassy terrains filled with wildlife, our state attracts tourists and residents from all over the world and is among the top three most visited states in the nation. California is also a hub for military personnel. It proudly boasts having the highest number of active-duty personnel in the nation and a whopping 32 military bases. In fact, California has the largest veteran population in the nation with 1.6 million individuals. San Diego County claims about 240,000 veteran residents, which is the third-largest in the nation.

Despite having the largest veteran population, California currently offers very little financial relief for our military retirees. We are one of only nine states that do not have specific legislation regarding state income tax exemption of military retirement pay. New York has one of the largest state populations in the nation and is home to a little over 40,000 military retirees. Military retiree pay is fully exempt from taxation in the state. With over 99,000 military retirees, North Carolina has legislation that exempts tax if the retiree had five or more years of creditable service.

By not offering these tax incentives, what message is California sending to our military retirees, who have put their lives on the line to keep us safe? Apparently not a welcoming one, as we are losing military veterans to other states at an alarming rate. The number of overall retired military personnel increased by about 10% from 2005 to 2015 in the U.S. Unfortunately, retirees in California decreased by 9.5% over this same period.
While many may believe military pension is a generous gift after diligent years of service, it often translates into a very harsh reality. Nearly half of the military retirees that reside in California are 65 or older, leaving them with few options for additional sources of income. According to the military compensation calculator, the military rank of E-7 will get less than $30,000 per year in their retirement pay. E-7 is the most common rank that retires according to the Department of Defense report from 2018. Notably, California leads the nation – and even the world – in progressive policies, but we fall short with our veterans. This is why I have introduced SB 1007, which will exempt military retirees from paying a state income tax on their military retirement pay.

My bill demonstrates a hard analysis of the benefits this incentive would bring to California. There are multiple issues that military retirees face while trying to integrate into civilian lives after their many years of service. The pension for a majority of military retirees is unsustainable for California’s cost of living index, leaving thousands to search for additional income. Furthermore, many of these retirees end up leaving the state or even homeless. This bill extends an economic opportunity to the local and state economy by inviting military retirees to remain in California. Increased retention and migration by military retirees would boost state and local tax revenues from property tax, sales tax, and other non-income taxes. New arrivals would generate income tax revenue directly through taxes paid on their non-pension incomes, but also indirectly by their public consumption of establishments that employ individuals who pay state income tax. More importantly, investing in legislation like this sends a message of utmost respect and gratitude to our military retirees for their tireless commitment to serving our country.

In previous years, other legislators have introduced similar bills that have not made it past the committee phase. We cannot afford for SB 1007 to suffer the same fate. If you support my bill and our veterans, please contact your representative in the State Assembly and State Senate to let them know we need their vote.


Ben Hueso is a California state senator.