Gov. Rick Snyder has asked the Michigan Supreme Court for an informal opinion on whether the effort he pushed to eliminate the state’s pension income tax exemption abides by the Michigan Constitution and holds legal water.
The request, sent on Tuesday, May 31, states that some have raised issues about the constitutionality of the public pension income tax that was signed into law late last month.
According to Marcia McBrien, public information officer for the Michigan Supreme Court, the high court can agree to offer its opinion or decline doing so. While there isn’t a time frame set on when an advisory opinion could be issued, the effective date of the bill would be a consideration if the court grants Snyder’s request and agrees to release an informal ruling.
Public Act 38 of 2011 — the new law that goes into effect at the beginning of next year and will remove the income tax exemption that most Michigan retirees enjoy on their pension income — drew the ire of retirees and public employee groups when it was moving through the state Legislature. It remains controversial.
In his letter to Michigan Supreme Court Chief Justice Robert Young, Snyder asks for the nine-member body’s informal opinion on the following four questions:
• “Does reducing or eliminating the statutory tax exemption for public-pension incomes, as described in Section 30 of the Act, impair accrued financial benefits of a ‘pension plan [or] retirement system of the state [or] its political subdivisions’ under (Article 9 of the Michigan Constitution)?”
• “Does reducing or eliminating the statutory tax exemption for pension incomes, as described in Section 30 of the Act, impair a contract obligation in violation of (Article 1 of the Michigan Constitution) or the Constitution of the United States…?”
• “Does determining eligibility for income-tax exemptions based on total household resources, or age and total household resources, as described in Sections 30(7) and 30(9) of the Act, create a graduated income tax in violation of (Article 9 of the Michigan Constitution)?”
• “Does determining eligibility for income-tax exemptions based on date of birth, as described in Section 30(9) of the Act, violate equal protection of the law under (Article 1 of the Michigan Constitution) of the 14th Amendment of the Constitution of the United States?”
“Prompt review of these questions would be greatly appreciated, as it will provide needed direction to me and the Legislature as to whether further reforms to the tax code are necessary to solve Michigan’s fiscal crisis,” the letter reads. “In addition, it is anticipated that other interested parties will want to participate in the merits briefing of this request, and if so, I welcome those parties to raise any addition questions bearing on the Act’s validity.”
According to McBrien, there have only been 26 requests for the court’s “advisory opinions” since 1967 — a rate of less than one each year. The last time an advisory opinion request came from the state House of Representatives in 2006, when that body requested that the Supreme Court opine on the state’s voter identification law — the Michigan Supreme Court upheld the statute in a 2007 opinion, McBrien said.
Under the new state law, the retirement income — public pensions, private pensions, 401(k)s and IRAs — for those born after 1952 will 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 will 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 will 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 above $45,120 for single-filers and $90,240 for joint filers — will be taxed at 4.35 percent, with that level dropping to 4.25 percent starting in 2013. Public pensions for those people would not be taxed, and 401(k)s and IRAs would be treated the same as under current law.
In addition, effective Jan. 1, 2012, senior citizens born after 1945 will not be able to deduct a portion of interest, dividends and capital gains.
Bill McMaster, state chairman of Taxpayers United Michigan Foundation, who has called the pension tax unconstitutional based on provisions of the Headlee Amendment, could not be reached for comment prior to press time Monday, June 6.