The volatility of the COVID-19 economy and its impact on the finances of millions of Americans has underscored the growing societal need for financial security.
At the same time, the recent economic disruption has created budgetary shortfalls in many states, prompting lawmakers to consider new ways to cut expenses and raise revenues. Some of these ideas would make it harder for people to prepare for retirement.
Fortunately, the Colorado legislature stood up for the financial security of its citizens this week when it wisely rejected a proposal that would have amounted to a tax on annuities and other products that back retirement savings.
Annuities are the only financial product in the marketplace that offers guaranteed income for life. During the market instability produced by COVID-19, the value of stable, guaranteed income from annuities has been reaffirmed.
Life insurers offer annuities, as well as other vital private market financial products that help strengthen the social safety net for American families. Coloradans received $1.4 billion in annuity benefits in 2018 alone. Six months ago, the U.S. Congress recognized the need to strengthen the hand of savers by making it easier for employers to offer annuities as part of retirement plans.
The Colorado proposal would have hit farmers, ranchers and small business owners in the state especially hard. Theyare the most likely to lack an employer-provided pension and, for retirement, often rely on the funds they receive when they sell their farms, ranches and businesses. This proposal would have subjected their life savings to a second round of taxation on already taxed savings.
In addition, many people who are injured receive annuities as part of a monetary settlement. In Colorado, an estimated 20,000 people benefit from these arrangements.
We recognize that COVID-19 has created difficult budgetary challenges for states like Colorado. But effectively boosting taxes on the state’s most vulnerable and those working to save for retirement is not the answer.
The Colorado legislature sensibly protected its constituents who are working to secure their financial future. Other states should follow the Centennial State’s lead.