Paul Roney (Forum, Jan. 25) said it's time for Michigan to start taxing pensions. I agree.
I pay no state income tax, and I think it is outrageous. In 2008, my wife and I had adjusted gross income totaling $51,098 consisting of interest and the taxable portion of our pensions and Social Security. We had to pay $3,866 in federal taxes, but since pensions and Social Security are exempt from Michigan's income tax, we paid no state tax. In fact, the state paid us $900, our homestead property tax credit.
Nor did we pay city taxes. Pensions and Social Security are exempt from city taxes, too. But don't blame the city of Lansing. City income tax rules are imposed by the state.
Now let's look at someone less favored by our Legislature.
Let's imagine a single woman with two children whose only income is from her $15 an hour job. Her total income for 2008 is $31,200. With her $8,000 head of household standard deduction, $10,500 in exemptions ($3,500 x 3), $2,000 child tax credit and $1,563 earned income tax credit, she owes no federal income tax. Instead, she gets a $2,227 refund.
But her state income tax is $336 and her city of Lansing tax is $294.
So the single mother with a full-time job paying $31,200 gets stuck with a total tax bill from state and city of $630 while my wife and I - comfortably retired with an income of $51,098 - pay no state and city tax at all. The state pays us $900.
The state needs to fix this inequity by taxing all types of income considered taxable by the federal government.
Back in 1967, when the state income tax was enacted, the only exempt income was military pay. Taxing all income would generate a lot of revenue at a time when it is really needed - close to $2 billion, by my estimate. And if the state doesn't need all the revenue, it could lower the income tax rate.
This is the letter from Paul Roney I was referring to at the start of the above letter:
Start taxing public pensions to aid budget
January 25, 2009 (letter to Lansing State Journal)
The state's personal income tax base is eroding due to out-migration and high unemployment.
So, where can the state gain substantial new revenues from the personal income tax?
The time is right for all legislators to act in the interests of citizens and not as politicians. The time is right to correct the injustices of the income tax law. The time is right to recognize that, as a tax on income, all incomes should be included regardless of their source.
Michigan should start collecting income tax revenues from the thousands of public pension retirees who now pay nothing whatsoever, some of whom have incomes in excess of $100,000!
Michigan should impose the income tax on all pension retirees, if their income is above the established poverty level.
At the same time, Michigan needs to provide exemptions to all taxpayers so that family exemption totals match the poverty guidelines. And the state must reconsider the validity of not taxing the $76 billion (2005) of income that was subtracted from federal adjusted gross income to arrive at taxable Michigan income.
Lawmakers must take the moment to pursue proper action and correct the tax code, while providing legitimate new revenues to help meet our financial crisis.
Paul Roney was speaking out about the injustice of exempting pensions from the income tax long before I was - 15 years
before, at the least. I had the following clipping from 1992 because at that time I was collecting anything pertaining
to Lansing's early retirement of 1992, in which Mayor Terry McKane and City Clerk Jim Blair took bonuses to retire.