Issue Background

Public Service Earned Benefits

Bottom Line: A state income tax exemption for military, federal, state and local public service retirees is an important economic development tool for North Carolina.  The benefits outweigh the costs by more than two to one, making it clear that the right thing to do is also the wise thing to do.  It’s time for North Carolina to keep its promise and exempt military and other federal, state and local government pensions from state income tax. 

Did You Know?  Some of North Carolina’s military, federal, state and local public-service retirees are exempted from state income taxes on their pensions, while others must pay income taxes – an unfair tax policy effectively creating two classes of retirees.  Restoring the state income tax exemption for all military and public-service retirees is not only the right thing to do, but also an excellent investment in North Carolina’s economy – with a benefit-to-cost ratio of 2.5 to 1!

  • Job Creation, Increased Consumer Spending & GDP – It would have created 3,600 jobs and increased the state’s output by more than $390 million during the first year!  As retirees spend in local economies, jobs are generated.  
  • Support for Military Bases – It will help protect our military bases by encouraging retired military personnel to relocate or remain in the state, providing support services to both bases and private- sector defense contractors. 
  • Increase in the Capital Pool – The increased capital pool from these high-income, well-educated retirees would provide North Carolina banks and financial institutions with funds to lend small businesses and help grow jobs.  
  • Boost to Public Schools – It would help public schools by providing an incentive for these retirees to set up households here.  The household real estate taxes of two retirees support the public schooling of one “community student” since few retiree households have students.  
  • In-Migration/Retention Benefits – It would increase the in-migration and retention of these retirees, yielding significant benefits such as increased sales and property tax revenues, new home construction and purchases, a more stable business cycle, more volunteer service and charitable contributions, and support services for military bases and defense contractors.

Download the Economic Impact Study here

"The right thing to do is also the wise thing to do."