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Original article URL: http://bridgemi.com/2014/08/foul-on-snyder-for-playing-word-games-with-pension-tax/

Michigan Truth Squad

A project of
the Center for Michigan.

Foul on Snyder for playing word games with pension tax

Who: Gov. Rick Snyder
What: “Governor Snyder’s special message on aging”
The call: Regular Foul

Relevant text (at 15:00 mark):

“It’s a topic that comes up quite often and it’s the quote unquote pension tax. And I want to be proactive and let people know it’s not a pension tax.”

In a video published June 2 from a speech at the OPC senior center in Rochester, Gov. Rick Snyder gave what was billed as a special message on aging. Covering a variety of subjects, Snyder referenced a 2011 change to the Michigan tax code that slashed taxes for businesses by $1.65 billion, and made up for most of that cut by increasing income taxes. A big and controversial part of that income tax increase was the taxing of public and private pension income. That change alone was expected to raise for the state, and cost pension-receiving taxpayers, about $343 million in fiscal year 2012-13.

The changes are phased in, with those reaching the age of 67 in 2020 or after facing more taxes.

According to a House Fiscal Agency analysis, a retired couple born after 1952 with $48,000 in pension income would pay $3,130 more in taxes.

Snyder’s claim that Michigan residents now taxed on their pensions are not dealing with a pension tax is based on this: There is no specific pension tax. Instead, Snyder and the Legislature removed a tax exemption that had previously barred pension income from being counted as income.

“To your specific question, the governor is right,” said Snyder campaign spokesperson Emily Benavides. “There is no new tax on pensions. People with pensions had a special-interest carve out in the tax code for years, while working seniors paid the same income tax as the rest of us.”

Snyder’s logic appears be that, as he said in the speech, “eliminated exemptions, exclusions, ways people weren’t paying tax” on pensions is different from a pension tax – a semantic distinction that he’s had a difficult time selling outside his administration, as shown here here or here, or by the Michigan office of the American Association of Retired Persons.

The call: Regular Foul

Snyder has been a vocal supporter of tax reform since he entered office in 2011, and has been steadfast in his belief that pensions should not be immune from income tax, even when several Republican legislators tried to repeal the tax on pensions in 2013. To tell a room full of seniors that a change he created that forces them to pay taxes on pensions is not a pension tax borders on sophistry and crosses the line of common sense.

45 comments from Bridge readers.Add mine!

  1. Pamela Hannula

    A tax increase is a tax increase. He’s full of bull.

  2. Mixer48

    It’s a slippery slope. Just wait until they have to make up the difference after “voters” repealed the Personal Property Tax!

  3. Katherine

    I will plan to retire elsewhere before I will support Snyder’s idiotic taxing!!

  4. Nick Ciaramitaro

    And to add insult to injury he used the money to give major tax breaks to wealthy corporations with no assurance of jobs or fairness to their customers. Those businesses still use our roads, our courts, and are complaining that we don’t spend enough on higher education to train their workers but now pay the 3rd lowest percentage of the cost of state and local government in the country. And that’s before the personal property tax cut went into effect.

    Governnor Snyder defines fairness the same way he describes disaster — a tree branch on his summer home.

    1. Barry Visel

      Businesses can only afford to pay taxes if they can convince their customers (you and me) to purchase their goods and services at a price that includes their tax liabilities. Hence, businesses don’t pay taxes, their customers do. BUT, businesses do provide jobs. Do you want to give up the jobs or give up the taxes? (See my other post to this story. I would gladly use tax expenditure revenue to eliminate all business taxes and invest in the infrastructure to attract and keep them here for the jobs they provide. This approach would make our State stand out as highly competitive for business attraction).

      I do believe that business should place a bigger investment in employee training than they do now (speaking as a past member of two Michigan Works! Boards).

      1. Richard Oman

        If those tax cuts went to support job training, economic growth, employee benefits or community improvement your comments would be supportable. However, more economic benefit went to management compensation, stock dividends, and bankrolled profits – as far I can tell. I see little or no advantage for those seniors whose contracts with the state have been broken.

        1. Charles Richards

          Mr. Visel is absolutely right. Businesses do not pay taxes. They add them into the price of goods and services, deduct them from the compensation of employees, and reduce the dividends received by pension funds and individuals’ retirement portfolios. They merely collect the taxes and forward them to the state. Individuals pay them all. It is a neat subterfuge that Democrats use to raise money for programs without annoying their constituents.

      2. Morgan Syluk

        why should seniors on a fixed income subsidize job creation instead of simply lowering the state corporate tax rate to do so? The new jobs would generate tax revenue.

    2. CE Tucker

      Well said!..My colleagues and I spent decades accepting lower than cost of living salary increases (if any!) in order to preserve our pensions and retirement health insurance coverage. I retired in 2011 with the belief I would know exactly how much my pension would be only to lose about $5000 to unexpected taxes and health insurance costs within that first year…no grandfathering/no vote of the people…just a sleazy rushed through series of bills to further punish the middle class. Especially appalling is how few years legislators have to work to receive a pension (while making more money in what is clearly a part time job than I or most public servants do), I had to work at least 30 years to receive my pension. VOTE this totally out of touch governor and the Republican legislators out in 2014!!

      1. NS Miller

        What you say is true! I also want to add that if you are going to tax pensions, then do it to everyone. The age limit percentage is just plain stupid. How did he come up with that date (1952) anyway and why?

  5. Barry Visel

    Hooray!!! Snyder is right. This is NO foul. Eliminating a ‘special interest’ TAX EXEMPTION is not a new tax. Now let’s get rid of the rest of the estimated $30 Billion of tax exemptions we give away every year. That way we would all pay our fair shair…all of us…without any tax exemption gimmicks. By the way, I certainly wouldn’t ‘t give Lansing $30 Billion of new revenue. In exchange for eliminating all the exemptions I would ask for commensurate decreases in sales and income tax rates.

    If you’re interested in checking out the $30 Billion claim, it’s all right here in this appendix to our State Budget: http://www.michigan.gov/documents/treasury/ExecutiveBudgetAppendixOnTaxCreditsDeductionsAndExempts_FY_2013and2014_394614_7.pdf

    PS: I’m retired, and I applaud this first effort at eliminating tax exemptions. (Collectively, tax credits, deductions and exemptions are known as tax expenditures, i.e., revenue we should collect but instead give away for this or that special interest. If we didn’t do that we wouldn’t have a revenue problem).

    1. Rich

      Mr. Visel, you are one of the few who can see the truth. Everyone is always yelling about the “tax on seniors”. When the law went into effect, seniors (those born in 1945 or earlier) were grandfathered in and had no change in their exemption. Those born from 1946 to 1955 or thereabouts still get 40% of their pension income exempted, and the full repeal of the exemption doesn’t go into effect until 2020. I say chip away at all the special exemptions before any talk of raising taxes.

  6. Mark G

    “To tell a room full of seniors that a change he created that forces them to pay taxes on pensions is not a pension tax borders on sophistry and crosses the line of common sense.”

    Wow, biased much?

    Eliminating an exemption is certainly not creating a tax, it is eliminating an exemption. If he had eliminated an exemption on a business paying income tax would you say it is a new tax on business? I bet not.

  7. dick b

    Income is income, whether one gets it from business, investments, working, or pensions. If Michigan taxes one type of income, it should tax all types of income. There should be no special interests getting off. No filmmakers, businesses, or other special interests. We all get the benefits that a fair tax from government supports (police, fire, roads, etc.,), but not all of us pay for it. Consider welfare recipients, they take but do not give anything back. Some can’t , and shouldn’t pay, but most can and should pay by lowering their benefits accordingly.

  8. Dan

    Try eliminting a ‘special exemption’ on business and you’d never hear the end of the cries of a ‘tax increase”.

  9. Joe Prince

    When you retire move to a state were they don’t tax your pension my wife and I moved to Tennessee loving it.

    1. Gary B

      Tennessee has no income tax, although interest and dividends are taxed at 6%. Persons over 65 whose total income is less than $16,2000 (single) or $27,000 (married) are exempt from that tax. So Tennessee treats pension income exactly the same as all other income, which is fair.

  10. Rick Nagel

    Really not a tax then how come they are taking 1700 more dollars a year put of my pension check I would have gladly paid it for infrastructure but not to give business a tax break what a joke thank god seniors show up at the polls they need to throw this bum out and you know pension are a fixed income so do you suggest they go back to work to pay the extra tax I had too

  11. Vicki

    Why is everyone so against business? On one hand you complain about high employment, losing the middle class to poverty & a need for job training. How do you think these problems are rectified? By creating jobs. Beginning in the late 70’s, early 80’s, corporations were leaving Michigan by the dozens, taking the employees with them. Michigan needs to create a business climate that can compete with competitive states that enticed our manufacturing jobs away. It’s necessary occasionally to spend money in order to make it. If our state government would work together for the benefit of its people, instead of the party, they should level the playing field for all constituents, not only special groups. I pay taxes on all retirement income. Why should a special few get tax exempt pension income??? I agree…eliminating a tax exemption is not a tax increase.

  12. JHoover

    The Gov. adheres to Accounting Principals not Human Principals !

  13. Stephen Paraski

    Why don’t you eliminate exemptions, loop holes and other ways business’s get out of paying tax. Oh, I forgot, you created a bunch of laws so business’s could get out of paying taxes. And I ask you Gov. Snyder, where are all those jobs you said your business tax cuts would create?

  14. Tranquility7

    If you take a job in the public service sector, you are most likely not going to make the same money as in the private, nor are you privy to bonuses and raises commensurate with increases in business activity. Teachers, get more students, increase in business—can you get a raise? Pfttt! Or say police officers having to deal with more crime? Write more tickets? Does that get you a bonus or raise? I think not. It is not likely because it comes from a budget paid for by taxpayers. A public sector worker gives up quite a few perks to hold that job as compared to the private sector. Here’s the trade-off. One of the selling points that keep people in public service sector jobs is the contractual agreement regarding benefits, health care and pensions. Snyder broke that contract with all but the police and fire sector jobs and turned around and gave the break to business. Did that provide jobs? NO! Not really… as we’re still #4 in the nation in job loss. Does a public service employee, have more money to buy products to increase the economy or give a business its “God given” duty to provide more jobs. It is total BS to think that giving tax breaks to businesses creates more jobs. It increases the pockets of the share owners and stockholders. There is no writing on the wall that says “They have to provide more jobs:” This country is built on the well worshiped god of “capitalism” without regard for environment, humanity, safety, government oversight, veterans, the elderly, the disabled, nor the care and feeding of its citizens. It is built on nothing but pure and greedy profit gain by those that can find a way to succeed. And then stand there and say “I did this on my own, no one helped me!” No worker, no employee in his business gets the credit. It is the old “I’ve got mine, you need to get up off you’re a$$ and get your own. There is neither logic here nor human compassion for the other guy. In the past 30 years businesses have had a growth spurt of over 300%. Do you see any of the trickling down to you? It certainly hasn’t helped me and it won’t as I worked in the Public Sector. Today’s American businesses are raping this country in every which way but Sunday and then heading overseas with the profits so they don’t pay any more “taxes.”

  15. Cheryl

    We simply moved to Florida, Good bye Snyder!! Sure we aren’t the only ones! That’s great for Michigan economy!

  16. WandaJan

    It not only crosses a line, it’s an insult to your intelligence!

  17. Deb

    Everyone who can move to a state that doesn’t tax pensions should move asap. Gr8 all those other states manage to figure out a way to get by without hitting seniors specifically. Close the business tax loop holes and I bet you’d hear about the tax increase on them. Live on a fixed income and find out how much that money matters.

  18. JD

    In or around 1962, the civil service commission decided that they would make the Michigan civil service pensions exempt from Michigan income tax in exchange for a reduced raise in pay. Ever since then, all civil service employees planned their retirements based on this. Fast forward to around 2008. In response to complaints of a few “double dipping pensioners”, a law was passed preventing civil service retirees from returning to work for the state. Within 2 years after that, the pensioners were told “remember that promise about your pension being exempt from state income tax? Well, never mind that, we’re taxing it now anyway. And, (ha ha ha) you can’t even go back to work to compensate for it!

  19. Paul DuBois

    Though his claim that it is unfair that someone like me, who was fortunate enough to work for a company that offered a pension, should not be taxed on his retirement income (remember no tax was paid on the money when it went into the pension account). But some one who was not so lucky and so they have to work into their retirement years is taxed on their income. That is a hard argument to disagree with.

    1. J Johnson

      Exactly Paul.
      Filled out my parents tax returns for years. No pension per se. But withdrawels from their IRA/401-k were not taxed as well. Yet, they got a tax exemption on the monies put into those plans. Same effect as the pension investments. The federal gov’t taxes those benefits as well as Social Security if you make too much in their eyes. Here, we will be taxed on only those amounts beyond the first $40k, whether pension, IRA, or wages after age 67. The feds don’t give you that deal. From a fairness standpoint, I have friends receiving gov’t pensions and have retired at age 55. I am 60 and looking for my next job as I can’t afford to retire, even as someone who has been a CFO in corporate America. And when I do I will pay taxes for the luxury of continuing to work. Those under the “normal” retirement years who are blessed with the opportunity to retire early should not be given an unfair tax advantage as well.

      1. Paul DuBois

        Affording to retire is part based on what you want to do when you retire, and part based on ability to save before retirement. Social security and the 401K brings up another interesting fact. If you were fortunate to have a job that allowed you to invest and save in a 401K, that income is not counted against SS payments. If you were not so fortunate and have to work, your income is counted against SS. This is one more way our system is slanted toward the wealthy and those who invest for a living as opposed to the less fortunate and those who work at the lower end of the pay scale.

  20. Steve

    if it talks like a duck and walks like a duck, it’s a tax,

  21. Rich

    It is completely unfair not to tax pension income. Michigan was one of only four states that excluded pensions from state income tax. Fortunately, this inequity has been rectified and all seniors pay the same tax rate on income whether earned or unearned.

    Having said that, I strongly disagree with Snyder raising income taxes generally. He should have reduced the state budget and reduced the individual income tax rates for everybody. Instead of cutting the State budget, all he did was shift taxes around. And I am a (true) conservative so I am not a fan of Mr. Snyder. he should have reduced tax rates on everybody (while still eliminating the unfair exclusion of pensions).

  22. Tom

    Ricky, Ricky, Ricky. Nerds figure, figures lie and lairs figure. You do the math and figure out where you are in this equation. Shame on you Uncle Ricky, you are not as smart as you think you are………

  23. Reginald

    I m moving out of MIchigan because of Rick

  24. Elvis5674

    This is awesome! So instead of passing a new tax on services, the state could remove the exemption on services from the sales tax. Instead of passing a new tax on certain businesses like oil and gas companies, the state could just remove one of the exemptions they receive. Heck, I think the state could also just “restore” the income tax to 4.4% without any problem, too.

  25. Blue Bike Mike

    I agree with the Governor on this issue. Why should pensions be exempted from income tax? They’re not exempt from federal income tax and the overwhelming majority of states tax them like regular income. I don’t see the logic in why non-pension income should be subject to tax while pension income would be exempt. What we should be focusing on is getting capital gains taxed like regular income and the elimination of other tax-preference loopholes. This was not a tax increase – It was the closing of a preferential loophole.

    1. Rich

      Amen, Mr. Mike. Those that speak against what Gov. Snyder has done would speak against him if he handed out money to everyone.

  26. john hargenrader

    All income should be taxed equally. The pension special exemption violates the single rate requirement of the Mich Constitution.

    Snyder made the wrong tradeoff. Instead of reductions in Corporate taxes, the general tax rate should have been lowered to 3.6% for everyone to be revenue nuetral.

  27. Rich

    If you want to talk about a real,tax inequality, how about the homestead exemption. Move to another state to avoid the state income tax, and get whopped over the head with a huge increase in property tax if you still maintain a house in Michigan. It is the biggest rip-off especially since you no longer have the opportunity to express your opinion at the polls. The most fair tax would be for every single person to pay the same amount. I think there are words in the Constitution to the effect of all people being created equal.

  28. AARP Michigan

    AARP does not endorse or oppose political candidates, but we can report that our members know this as a pension tax..

    1. Barry Visel

      I’m a member, and I’m retired. Yes, it’s a tax, but it’s not a new tax. It should have been paid right along. Instead, it was rolled into one of the $30 Billion of tax expenditure schemes dreamed up over the years by Lansing. AARP should be educating your members about tax expenditures…our grandchildren would benefit greatly by their elimination!

      1. AARP Michigan

        Actually, we have had Mitch Bean, former director of the House Fiscal Agency and Bob Kleine, former state Treasurer, address our members at several AARP events about tax expenditures.
        As for the pension tax, our members have expressed two prevailing viewpoints: It’s unfair for the state to change the rules of the game after people made retirement decisions based on the no-tax status of their pensions; and many of those who thought it was fair to tax pensions took issue with using the new revenue to finance a business tax cut rather than using the money to pay for, say, preschool access, road repairs, or upgrading public schools.

  29. John Q. Public

    There’s an opinion piece in the Detroit News here:

    http://blogs.detroitnews.com/politics/2014/08/21/called-truth-squad-even-pretending-fact-checkers-anymore/

    that dismisses the validity of this evaluation because there’s no such thing as a “pension tax”; only an income tax from which heretofore pension income had been exempt. That is, Snyder and Co. did not institute a new tax; they just closed a loophole.

    Semantics aside, there’s some validity to that position. I wonder if they think that methodology ought to be applied universally. To wit:

    The Republicans are breaking their arms patting themselves on the back for getting rid of the personal property tax. The thing is, Michigan doesn’t have a personal property tax; just a general property tax to which business personal property is subject. Some personal property, like household goods, has long been exempt from the general property tax, but business personal property has not.

    Applying the same logic they want to use for the pension tax to the property tax leads to this conclusion: They didn’t get rid of the personal property tax, since there’s no such thing; they just opened a loophole in the general property tax.

    So, I’ll agree that there was no creation of a “pension tax” and they just closed a loophole if they’ll agree there was no elimination of a “personal property tax” and they just opened a loophole.

    Any takers?

  30. john

    Why weren’t all people that were retired when gov.synder changed the tax on pensions grandfathered in at that time? Most of these people had that tax-exempt figured in when they retired….and even companies used it as a point to employees when considering retirement. Those retiring after the change at least know what’s what and then make their choice but those already retired didn’t and were left short of $$$. EVERY retiree caught up in this should remember come nov. A repeal of this in some manner should happen….I hope….meanwhile I’m back working.

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