Commissioners address fairness with income tax.

Byline: The Register-Guard

The Lane County commissioners hope to raise support for their second run at a countywide income tax in six months by addressing criticism about which types of retirement income would be taxed, and which would be exempted.

But the board chairman acknowledges that the solution that's in the works may be less than perfect. It still would require many private sector retirees to pay the income tax on their retirement income, while government retirees would be exempt.

In the proposal that voters defeated in November, the county planned to tax private sector retirement income but not retirement income from the government sector. State law blocks counties from taxing income from the Oregon Public Employees Retirement System, and federal law requires the county to treat federal government retirement income the same.

Thus, a retiree's income from their 401(k), IRA account or traditional defined-benefit pension would have been taxed, but a retiree's income from federal or Oregon government retirement systems would not. In fact, the tax would not have been levied on the government pension plans of the commissioners themselves and all county workers.

Opponents of November's measure cited retirement taxation unfairness as one of the main reasons for voting no, Eugene-based Lindholm Research reported in a post-election survey.

In the tax proposal now under review, the commissioners may choose to exempt some forms of private sector retirement income - namely, those that they consider to be from federally recognized retirement pensions. County officials haven't released a list of what would be exempt.

But the tax still would apply to retirement income from 401(k), IRA and Roth IRA plans, and to income from investments in equipment or real estate, board chairman Faye Stewart said.

Tax experts might argue that a 401(k) plan is a federally recognized retirement pension, and county staff members still are working out kinks in the tax proposal.

Has the county eliminated unfairness in its treatment of retirement income if it still would tax 401(k), Roth and IRA plans, which are widely used by private sector employees?

Stewart acknowledged the county's predicament. But he said exempting all retirement income would eliminate a large potential pool of tax revenue for the county and thus would require raising the tax rate too high on everyone else.

"I don't believe there's any way possible to account for every retirement program," he said. "It's still going to be an issue to deal with."

- Matt Cooper