Michigan Tea Party Governor Wants to Tax Pensions
LANSING — After passage of his sweeping tax overhaul that finances $1.6 billion in business tax cuts with $1.4 billion in increased income tax collections, Gov. Rick Snyder asked the Michigan Supreme Court to decide whether key aspects of the change were constitutional.
Three weeks after he asked, the court agreed to take the case. On Wednesday, the justices will listen to oral arguments.
The key issue is whether applying the income tax to the pensions of Michigan public employees diminishes or impairs their benefits, which the state constitution prohibits. Public pensions have always been completely exempt from state income tax. The exemption for private pensions now totals $90,240 for a couple filing jointly.
Not all pension income is taxed the same under the new law. Snyder sought equity originally, but the political realities in a Republican-dominated Legislature forced him to scale back the impact on retirees who are among the most reliable voters.
Thus, those born after 1952 will pay income tax on all of their pension income. Those born 1946-1952 will receive an exemption of $20,000 for single filers and $40,000 for joint filers. Those born before 1946 will continue to receive the same exemption they enjoyed under the old law. Snyder also asked the court to answer whether it’s constitutional to tax retirees differently based on their age.
Taxing pensions will generate an estimated $343 million on a full-year basis. The amount gleaned from public pensions is about a third of that. But that number will grow over time as tax-exempt seniors die and new pensioners retire.
Given the money involved, Snyder took the unusual step to ask for immediate Supreme Court review. If the court strikes down that provision of the law, lawmakers will have time to retool the package, either by cutting the state budget or looking elsewhere for the revenue.
