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LANSING UPDATE

From: Ellen Hoekstra
Legislative Update
February 21, 2011

RETIREE UPDATE FOR FEBRUARY, 2011

SNYDER PROPOSES TAX ON PENSIONS

The big news is all over the papers - Governor Snyder has proposed that all state and school retirees pay state tax on their pensions. This proposal was not made to reduce cuts to other important parts of the state's budget, like funding for schools or higher education, both of which are slated for significant cuts in next year's budget. Instead, taxing pensions is part of a plan to reduce taxes to certain businesses in Michigan. AFT Michigan opposes this tax shift from corporations to individuals - particularly to individuals who are senior citizens!

What are the facts? The cost shift adds up to $900 million, adding together public and private pensions and taxing them at a 4.25%. This $900 million adds up to about half of the $1.8 billion cut in business taxes under his proposal to repeal the Michigan Business Tax and replace with a 6% corporate income tax. John Olekszyk, who heads up the new Coalition for a Secure Retirement, was quoted recently in the Lansing State Journal in opposition to the proposal. Olekszyk reminded us that not being taxed on pensions is "something special Michigan has to offer retirees to remain as residents here. Many retirees take taxation as an important factor to consider when they are deciding where to live."

The Snyder administration keeps telling the press: Michigan is one of only three states that offer near exemption of pension income from state income tax. This statement does not accurately capture the full picture. First of all, seven of the fifty states have no state income tax at all and two others tax only interest and dividend income. Of the 41 that have a broad-based income tax, ten exclude all federal, state and local pension income from taxation, according to the National Conference of State Legislatures (Feb. 2009).

This proposal to tax pensions cannot take effect without legislation passing both houses. Retirees are strongly encouraged to write their state representatives and state senators, mentioning the following points as well as the impact this proposal would have on you:

The proposal to tax pensions reduces the value of pensions by 4.25%

It is not fair to shift the burden of taxes from corporations onto retirees who live on fixed incomes.

When school employees decide when to retire, they figure out how much money their pensions will provide them. Taxing their pensions is changing the rules of the game for people who made a "life" decision.

The average school pension was under $20,000 last year. People living on that amount or less cannot afford a 4.25% cut in what they live on.