Day 73: This is one in a series of posts assessing key developments during Gov. Rick Snyder's self-imposed 182 days to chart a new course for Michigan by July 1. For earlier posts go to mlive.com/stateofchange.



Update: Michigan seniors rally at the Capitol to oppose Gov. Rick Snyder's plan to tax pensions

Gov. Rick Snyder today said elected officials made a mistake back in 1994 when they exempted private sources of retirement income, including pensions, from the state income tax.

Until then, only public pensions had been exempt from tax. At the time, Gov. John Engler told lawmakers either to start taxing public pensions, including their own, or begin exempting private pensions from tax.

Lawmakers in both parties, of course, chose the latter, allowing joint filers to exclude up to $60,000 in private pension from tax. Adjusted for inflation because the law also does that, the exemption is now up to $90,240.

Snyder said public pensions, exempt since the income tax was approved in 1967, “never should have been excluded to begin with.” Promoting equity by excluding private pensions nearly three decades later has in fact created larger inequities in the tax code, he said.

“With the senior population going the way it is, we’re just pushing the tax burden onto our young people,” Snyder said in a phone interview this morning. And it creates a long-term hole for the state budget as more and more income in Michigan is exempt from tax.

According to the House Fiscal Agency, public pension exemption is worth $233 million but the private pension exemption is now worth $700 million.

As retirees prepare to rally on the Capitol lawn this morning, opponents say taxing pensions to finance Snyder's $1.7 billion tax cut for business is unfair.

Eric Schneidewind, AARP Michigan’s president, says “a tax increase of well over $1 billion on seniors and the working poor in exchange for reduced services and a $1.7 billion tax cut for business” is not “shared sacrifice.”

“This is not tax reform it’s a tax shift,” Schneidewind said in talking points released prior to today's event. “Taxes on individuals will increase 32 percent while taxes on business will be cut by 86 percent. It’s not fair.”

But more than $7 billion in pension income is exempted from tax each year by beneficiaries who don’t even qualify for full Social Security benefits.

“If they retire at 55 and you look at their lifetime earnings, they may make more money from their pensions than they did in their working life,” Snyder says. “Is that fundamentally fair to say that more than 50 percent of that lifetime income is going to be excluded from tax?”

Under current law, he said, that 55-year-old pensioner pays no income tax. A person that age who’s working pays 4.35 percent and a business owner can pay 10 percent when the Michigan Business Tax is factored in.

Despite a deep pool of talented workers - though unemployed or underemployed - plus low housing prices and good quality of life, Snyder said employers will continue to shun Michigan because “they look at the MBT and say it’s not worth messing around with.”

But with the tax change, existing Michigan firms will add employees Snyder said, citing surveys from business associations supporting the change. When you cut the cost of business, he said, you create an environment of job growth.

How successfully does he feel he’s been in making that case?

“I think we’re making good progress,” he said. “The people who tend to be fairly positive (about the plan) tend to be fairly quiet.”

An advocacy group of Snyder supporters, Value for Michigan, says it will buy cable TV ads to sell the proposal.

Contact Peter Luke at (517) 487-8888 ext. 235 or e-mail him at pluke@boothmichigan.com.