Wednesday, February 23, 2011

Should Michigan Tax Private and Public Pension Benefits?

The governor's budget proposal calls for taxing pensions, something Michigan currently does not do. It would raise perhaps $700 million in new tax revenue, but what might be the potential "unintended consequence"? The Mackinac Center, in its recent "Capitol Confidential" opined on that...

"The most unfortunate part of the budget is the proposal to raise taxes on pensions. While the tax fairness and simplicity arguments are not invalid, it’s still a very large tax hike, and one that’s totally unnecessary — those $5.7 billion in potential government employee fringe benefit savings would save several times the estimated $700 million in new revenue from this tax.

State officials must remember that taxpayers are not gentle sheep waiting to be sheared, and many won’t. In effect, the move charges a retiree with a $40,000 annual pension $1,700 a year for choosing to remain in Michigan rather than move to sunny, income tax-free Florida."

8 comments:

Anonymous said...

And they should pay tax on that income to help support the state. Sure they can move to FL to "save" that tax money and pay even more in a higher sales tax and insurance costs. There's no free lunch - it's just a trade off.

Francis Lide, Houghton said...

As a pensioner myself, I think pensioners are spoiled, so I have nothing in principle against the tax.

I assume the new tax on pensions would be based on Federal taxable income minus taxable Social Security benefits. Pensioners of some years' standing like my wife and I don't have state withholding and are going to have to cough up over a thousand dollars in one lump sum this time next year. To avoid that in my household, we would have to institute state withholding from three different pensions.

If the rate is indeed Federal taxable income minus taxable Social Security benefits, you could predict the payments at various levels of income.

Anonymous said...

I love Michigan but Florida is starting to look better all the time.

Jack from Portage said...

My aunt, having lived in Florida for 30+yrs, moved back to Michigan after her brother died, to be geographically close to a cousin. After about 5yrs, she recently moved back to Florida stating, "Michigan is too expensive to live". I assume there are other savings besides the higher sales tax. She lives on a low fixed income.

When I heard about Rick Snyder talking more taxes I thought, aren't we suppose to be making Michigan more attractive to live and work? I heard a sound clip of Chris Christy talking "zero based budget". Come'on Michigan, lets get onboard the right train.

diogenes said...

Yes, I will need to pay more since I currently don't pay for my pension. On the other hand, this is taxes on the money that I put into an IRA to "defer" my taxes until my income was lower. I am not being double taxed. The way I look at it is that if we are going to get Michigan back in the black will need to have some pain. As long as the public sector employees participate in the pain, I have no problem with paying Michigan taxes on this. Of course if we go to a flat tax and no income tax, this becomes a mute point.

Dave in South Lyon, Mi said...

I have been on a fixed pension for 9 years, and since being on Social Security, it too has been fixed. In a 1/26/11 Daniel Howes Column in the Detroit news, he stated from 2000 to 2009, state employees salaries have increased 43%! And local government employees salaries have increased by 40%!
So where does the "principle" of taxing a fixed income citizen to pay for +40% public employees salary come from?
My income has been left in the dust of public employees and now they are reaching down in the dust to get more?????

Ron said...

New taxes on current fixed income pensioners is unconscionable. It is tantamount to changing the rules of the game in the fourth quarter.

Anonymous said...

The new pension tax should exempt individuals $25K of pension income and increase the tax rate on those with pensions in excess of $50K. A 30% increase in the sales tax to 7.8% would raise $l.8 Billion with a credit to low income tax payers'