With about six weeks still to go in the self-imposed timeline set by Republicans in Lansing to pass a state budget, top lawmakers and Gov. Rick Snyder unveiled a compromise revenue plan that would scale back the governor’s proposed tax on pensions and eliminate the Michigan Business Tax, which GOP leadership wants replaced with a 6-percent corporate income tax.
The deal, announced on Tuesday, April 12 by Snyder, Lieutenant Gov. Brian Calley, House Speaker Jason “Jase” Bolger (R-Marshall) and Senate Majority Leader Randy Richardville (R-Frenchtown), would also include a continuation of the 4.35-percent income tax rate until Jan. 1, 2013.
That rate was slated to drop to 4.25 percent.
Under the tentative agreement on the pension tax, neither Social Security nor military pensions would be taxed. A personal exemption of $3,700 per person would be included, indexed to the rate of inflation.
It appears as though those born after 1952 would take the hardest hit under the tentative agreement. Their retirement income — public pensions, private pensions, 401(k)s and IRAs — would be taxed at 4.35 percent, with that rate dropping to 4.25 percent on Jan. 1, 2013. When those people turn 67, a senior income exemption would be available at a $20,000 level for single-filers and a $40,000 level for joint filers.
For those born between Jan. 1, 1946 and Dec. 31, 1952, their retirement income would be taxed above $20,000 if they are single filers and above $40,000 if they are joint filers.
For those born before 1946, their private pensions — if under $45,120 for single-filers and $90,240 for joint filers — would be taxed at 4.35 percent, with that level dropping to 4.25 percent starting in 2013. Public pensions would not be taxed under the tentative deal, and 401(k)s and IRAs would be treated the same as under current law, Snyder announced.
An additional $150 million in cuts would be needed under the tentative agreement to keep the pension tax from affecting those who are 67-years-old or older as of Jan. 1, 2012.
When the plan was originally unveiled in February, the Snyder administration estimated it would bring in $1.7 billion annually. Estimates on the new plan’s revenue impacts were not immediately available.
“The positive progress being made on this critical issue bodes well for Michigan,” Snyder stated in a press release. “The original reform plan was a starting point for discussion and I am pleased that the dialogue has been so productive.”
“This agreement is the first part of an alternative plan to reinvent Michigan,” Richardville stated in a press release. “Senate Republicans worked hard to create a more attractive business environment in our state and to ensure that senior citizens were exempt from any additional tax burden.”
Mark Horbeck, a spokesman for the AARP’s Michigan office, said that the organization is opposed to basing tax policy on age.
“The policy that we object to is increasing taxes on seniors to pay for a business tax cut while at the same time reducing services,” he said, adding that association that represents 1.4 million people in the state has been meeting privately with legislative leaders and members of the Snyder administration. “AARP in general opposes a tax policy based on age. This would be the first time the state would be assessing tax liability based on age. We would prefer that tax policy be based on need rather than age.”
“It’s good to see the administration and legislative leaders admit that their initial budget proposal put too much of a burden on Michigan seniors,” said state Rep. Lisa Brown (D-West Bloomfield, Commerce, Wolverine Lake) in a press release. “However, their revised plan is nothing but a bait-and-switch that offers little relief in exchange for yet another tax increase. The bottom line remains the same: Michigan’s seniors and working families carry the bulk of the burden and our kids’ education suffers while giant corporations enjoy huge tax breaks. This proposal does nothing to honor the governor’s promise of a budget where everyone would share in the sacrifice.”
Other lawmakers from the lakes area couldn’t be reached for comment prior to press time.