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Retirees fight Mich. governor’s plan to tax pensions

Some GOP lawmakers balk at bill

Rick Snyder vowed to replace the business tax. Last month, he revealed that he wanted to tax retirement income. Rick Snyder vowed to replace the business tax. Last month, he revealed that he wanted to tax retirement income.
By Kathy Barks Hoffman
Associated Press / March 18, 2011

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LANSING, Mich. — Republican Governor Rick Snyder faces recall threats and angry protests over his attempt to do what no Michigan governor has tried in more than 40 years: tax the pension and other retirement income of millions of retirees.

The move has brought demonstrators to the Capitol and has thousands of seniors reminding the new governor that they could make reelection difficult for him and lawmakers who go along with him. Democrats oppose the move, and even some GOP lawmakers are casting about for an alternative to avoid raising taxes on a powerful group.

Snyder remains undeterred. The multimillionaire former Gateway computer executive says Michigan — which has some of the nation’s most generous senior tax breaks — cannot afford the $900 million it loses because of them, and that retirees need to pay their share rather than pushing the burden onto younger residents.

Arnold Eick, a former General Motors manager, says he needs tax breaks from his retirement income to stay afloat. Like many retirees, he’s incensed that he and the working poor who would lose a tax credit are being asked to pay more so Snyder can reduce business taxes.

“I just can’t understand how anybody can be that unfair, that evil, to take from the poor and give to the rich,’’ said Eick, 73.

Michigan currently charges no income tax on public pensions and exempts up to $45,120 worth of income from private pensions, 401(k)s, and IRAs for individual retirees, with limits of twice that for retired couples.

Eick says his out-of-pocket health expenses hit $27,000 over a three-year period because GM took away health care for salaried retirees. If the pension exemption also ends, the Flushing resident estimates he and his wife may owe $3,000 in annual income tax — something he says could make meeting his mortgage payment impossible.

“We’re going to have to leave our home,’’ he said while carrying a sign. “I’m old but I can recall two things,’’ it said. “1. Tax refunds. 2. You.’’

Snyder campaigned on a promise to replace the business tax with a 6 percent corporate income tax, a move that would eliminate $1.7 billion in revenue. But he didn’t reveal until last month that he wanted to pay for it by requiring more money from individual taxpayers.

The governor has put the business tax cut and pension tax increase into one bill so lawmakers cannot choose between them. But many Republicans see Snyder’s plan as violating their pledge not to raise taxes, and some lawmakers are talking about shrinking the size of the business tax cut so they don’t have to totally eliminate senior tax breaks.

“I like the governor’s business tax, but I don’t think seniors should have to pay for it,’’ said GOP Senator Jack Brandenburg.

Snyder says the business tax cuts are needed to help add jobs. He asserts that Michigan should never have exempted public pensions in the 1960s or eliminated taxes on other retirement income since then. He also wants to eliminate a $2,300-per-person tax break for those 65 and over and reduce the credit seniors get for property tax payments.

Retired state worker James Baker, 58, sees it as an example of efforts by Republican governors such as Wisconsin’s Scott Walker to attack the middle class and help the businesses that donated to their campaigns.

Michigan isn’t the only state rethinking senior tax breaks. In Illinois, the Democratic president of the Senate suggested that the state consider taxing the pensions or 401(k) income of wealthier retirees. And Democratic Governor Neil Abercrombie of Hawaii proposed taxing the pensions of individuals with an adjusted gross income of more than $37,500 and couples receiving more than $75,000. Unhappy seniors persuaded a legislative committee to more than double the limits.

Taking on retirees can be a tricky business, said Elizabeth McNichol of the Center on Budget and Policy Priorities. “I don’t think it’s the worst idea in the world to better target senior tax cuts,’’ she said. “But it needs to be done carefully.’’