The Democrats like to beat up on Governor Rick Snyder for the pension tax: "Snyder’s unfair tax on retirement income and property tax hike on seniors are hurting retirees who have worked hard and played by the rules," says challenger Mark Schauer.
The tax on retirement income isn't specifically a pension tax. It is Michigan's Individual Income Tax, the same tax everyone pays. Pensions are a form of income, and if you are going to have an income tax, you don't exclude some forms of income just because they affect a large voting block.
It is true that many of us old timers were counting on pensions being tax-exempt, and having the rug pulled out from under us is devastating - well, at least annoying. But since those with other types of income had to pay more to make up for what we didn't pay, exempting pensions was unfair. Yes, it was wrong to go back on the promise, but the greater wrong was to exempt pensions in the first place. It was an inequity that needed to be fixed.
I realized the pension exemption was wrong after I began drawing my state pension in 2002. I advocated ending the exemption in my quixotic run against state representative Joan Bauer in the 2006 Democratic primary. Later, In November of 2007, I sent a Freedom of Information Act request to the Department of Treasury asking for a breakdown by item of total "subtractions from income," the section of the income tax return where pension income is reported. They said they didn't have it. I wrote to then-Treasury Director Robert Kleine asking why in the world they did not have those figures. This was the reply:
So the state didn't even know how much revenue it was losing by not taxing pensions. (Jeff Guilfoyle is now vice president of Public Sector Consultants.)
In April 2009, I paid my tax preparer to calculate the figures for a letter to the Lansing State Journal in which I compared my own tax situation to that of a fictional single woman with two children whose only income was from her $15 per hour job. She paid state and City of Lansing taxes totaling $630 while my wife and I - comfortably retired with an income of $51,098 - paid no state and city tax at all. The state paid us $900.
Snyder was elected governor in November 2010 and soon after announced his proposal to eliminate the pension exemption.
Yes, there are old people with small pensions who are just scraping by, but there are a lot of young people with low incomes, too, and they don't get a break. 23.8% of Michigan children live in poverty. Remember that any pension recipient likely has two incomes: social security and the pension. And if they are over 65, they get Medicare. Furthermore, getting a pension doesn't mean you are a "senior." UAW members working for GM, Ford or Chrysler can retire with full pensions after 30 years on the job, as young as 50. Same goes for public school employees. State employees can retire at 55 with 30 years of service. State police can retire at any age after 25 years of service. Same goes for Lansing police, where 6 of the 10 most recent retirees were under age 50.
It is true that Snyder financed a business tax cut by ending the pension exemption and other deductions, but since business taxes are just another expense of doing business, that tax cut gets passed on to us in the form of lower prices.
No, I don't pay tax on my pension. I am 72, and the tax doesn't apply to seniors born before 1946. That's not the way I wanted it.
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