Governor Wants Pension Tax Removed

Whitmer to call for repeal of Michigan pension tax in State of the State address

Paul EganDetroit Free Press

Gov. Gretchen Whitmer

LANSING – Gov. Gretchen Whitmer will call for the rollback of Michigan’s tax on pensions in her State of the State address Wednesday, the Free Press has learned.

Whitmer’s administration is flush with cash because of federal stimulus funds and higher-than-expected state revenue during an election year.

She will tell an estimated 500,000 affected Michigan seniors that repeal of the law is expected to save them about $1,000 a year each, on average, and further stimulate the economy, according to a background document and a source familiar with the planned speech.

“That’s hundreds for prescriptions, rent, utilities, car payments, or gifts for grandkids,” says a state background document prepared in advance of the speech.

The move would be phased in over the next three years, but would fulfill a promise from Whitmer’s 2018 Democratic gubernatorial campaign. It would likely be embraced by Republican lawmakers, who introduced the tax on pensions as part of a broader 2012 tax reform package under former GOP Gov. Rick Snyder.

The term “pension tax” is a bit of a misnomer. The legislation Snyder pushed for and signed did not create a new tax, but it removed total and partial tax exemptions for income from public and private pensions, respectively. People born before 1946 were exempted from the change, and there was a phase-in for other seniors. Whitmer’s plan would restore those credits and exemptions based on the state’s improved financial position, the source said.Get the Coronavirus Watchnewsletter in your inbox.

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“By the end of 2024, Gov. Whitmer’s proposal would again exempt public pensions and restore deductions for private retirement income, including private-sector pensions, withdrawals from individual retirement accounts (IRAs), and the portion of a 401(k) account that is subject to an employer match,” according to the background document. Nobody would be taxed on retirement income when filing their income tax returns for the 2025 calendar year, according to the document.

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The tax was unpopular from the get-go, and Whitmer has faced criticism for not moving to repeal it more quickly.

“I am so sick of politicians making these promises to get elected, then never following through,” Ron Miakinin, a retired dentist in Rochester Hills, said in 2020, after Whitmer did not include a repeal of the tax in her second budget proposal.

More:Whitmer: State of the State address will be virtual again because of COVID-19

More:State of Michigan has more than $20B in extra revenue to spend: How it breaks down

In her first budget, in 2019, Whitmer included a plan to repeal the pension tax, but she tied it to an expansion of the corporate income tax that was unpopular with Republican lawmakers. The measure was never passed.

Snyder sold the pension tax as a fairness issue. He said some pension income was taxed while other pension income was not, and his approach would treat all pension income equally for tax purposes. Also, with Michigan’s aging population, it would avoid placing an ever-increasing burden on young people to fund state services, many of which are heavily used by seniors.

It was part of a broader plan that eliminated other personal income tax deductions, eliminated the Michigan Business Tax, phased out the personal property tax on manufacturing equipment, and introduced a 6% corporate income tax that applies only to a minority of Michigan companies — known as “C” corporations — which have shareholders and names typically ending in “Inc.”

A 2018 analysis by the Free Press found that one effect of the Snyder tax changes was a massive shift of the tax burden from corporations to individuals.

Despite a much healthier economy, corporate taxes shrunk by $1.2 billion, or 57.1%, from 2011, when Snyder took office, to 2017. Corporate taxes made up 6.4% of state general fund revenues in 2017, compared with 12.2% in 2011. And the share of personal income taxes in the general fund grew to 53% in 2017 from 47% in 2011.

The Treasury Department said in 2019 that repealing the pension tax would cost the state $320 million, of which $248 million would come from the general fund.

The Free Press reported on Jan. 14 that the state has about $5.8 billion in anticipated surplus state revenues and about $15 billion in still unspent federal stimulus and infrastructure funds that it can spend over the next several years. State Budget Director Christopher Harkins said the vast majority of that money is “one-time” revenue that would ideally be spent on items such as capital improvements, but the state likely has about $600 million in additional annual revenue tied to growth. That money could be used for new programs or tax reductions.

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Since Whitmer was elected governor, both Republican and Democratic lawmakers have introduced legislation to repeal the pension tax, but no bill has made its way to Whitmer’s desk.

Whitmer announced Jan. 10 that her State of the State address will be delivered virtually for the second straight year because of the coronavirus pandemic. It is normally delivered inside the state House chamber to a packed audience of lawmakers, other state and local officials and their invited guests.

Putting more money in residents’ pockets appears to be a central thrust of Whitmer’s reelection campaign.

Recent TV ads paid for by Put Michigan First, a group connected with the Democratic Governors Association, have touted auto insurance refunds of $400 per vehicle that Whitmer championed.

Contact Paul Egan: 517-372-8660 or Follow him on Twitter @paulegan4.  Read more on Michigan politicsand sign up for our elections newsletter

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