The effort to change Wisconsin’s tax code to match the federal tax code regarding IRA conversions has been getting some favorable editorial support. Today it was the Wisconsin State Journal:
The federal government is making it easier for more people to convert their traditional retirement accounts to Roth IRAs.
Wisconsin needs to quickly adjust its law to reflect the federal change. Otherwise, residents here could be surprised and stung by huge penalties.
The Legislature should approve Assembly Bill 608, which enjoys bipartisan support.
Wisconsin appears to be the only state in the nation that has failed to line up with the new federal law.
National financial service firms have been encouraging traditional IRA holders to convert to Roth IRAs. That’s because the federal government just started allowing people who earn more than $100,000 to take advantage of the conversion. Those who make less than $100,000 were already eligible for the break.
Last week it was the Racine Journal Times:
Roth IRAs are popular because the withdrawals are typically tax-free. Taxes are paid up front, leaving the federal government to salivate over the prospect of $6 billion in new revenue. But taxpayers shouldn’t begrudge that, given the extra flexibility this change affords them.
Previously, only people making less than $100,000 a year could make the Roth conversion. The updated federal law opens it up to everyone. If that forces state officials to sweat a little more to balance the budget, so be it.
By stomping their feet and pretending the new IRA rules don’t exist, are legislators really helping the state government’s bottom line? As James Wigderson wrote for a think-tank, the Legislative Fiscal Bureau calculated that agreeing to the federal changes would “actually increase revenue in the short term during Wisconsin’s budget crunch, and the decreases in revenue would only take place after 2012.”
The only ones sure to be hurt by the state’s stubbornness are those ready to make the IRA switch. Unless they’re pushing 60, they’d have to pay hefty penalties.
State Sens. Glenn Grothman and Pat Strachota are pushing a bill that will end the turf war and bring the new IRA rules to Wisconsin, something Gov. Jim Doyle had proposed all along. Passing that should be one of the earliest priorities when the bustle returns to the Capitol in 2010.
Government should encourage saving, not complicate it.
The think tank was the MacIver Institute, where I wrote,
By bringing Wisconsin law in line with federal law, the state would actually see an additional $1 million in 2010-2011 and $1.5 million in 2011-2012. It would actually increase revenue in the short term during Wisconsin’s budget crunch, and the decreases in tax revenue would only take place after 2012.
Kramer is hopeful that the legislature will enact the change. “There is a possibility this might actually happen because it is a revenue enhancer.” Kramer pointed to the continuing budget problems as a reason why Democrats might be willing to act on the change.
Of course, if the Democrats and Governor Doyle can mandate auto insurance coverage because Wisconsin was one of two states that didn’t do so, then surely Wisconsin can avoid being the only state that penalizes taxpayers for trying to be responsible about planning for their retirements.