Legislative Service Bureau Publications of Interest to SERA Members
TAKE ACTION ON PENSION TAX REPEAL
In Governor Gretchen Whitmer’s 2022 State of the State message, she called for repeal of the pension tax. That would essentially mean restoration of the tax treatment that retirement income like pensions, Social Security, and Individual Retirement Account distributions had before the income tax overhaul of 2011. In 2019 the Governor coupled pension tax repeal with an increase in the corporate income tax, a non-starter with the Republican legislative majority. Retirement tax repeal would save 500,000 households (of about 4 million in Michigan) an average of $1,000 a year according to the Governor’s office.
HB 4002 — House Bill 4002 sponsored by State Rep. Joe Bellino (R-Monroe) would partially repeal the pension tax, giving younger pensioners born after 1946 the same income tax treatment as older pensioners. The bill would eliminate the three tier age/birth-year treatment of retirement income that was adopted in 2011 and which Michigan SERA opposed all the way to the Michigan Supreme Court. Moreover, the bill would allow the current tax deduction on private retirement income for those born before 1946 for all taxpayers 65 years and older.
SB 467 —A more modest modification of the pension tax is in Senate Bill 467 sponsored by State Senator Jim Runestad (R-White Lake) who is chair of the Senate Finance Committee. According to the Senate Fiscal Agency Analysis, the bill would amend the Income Tax Act to increase the amount an individual who was born after 1945, and had reached the age of 67, is eligible to deduct from his or her taxable income. The bill would increase the amount of income that may be deducted by $5,000 per return for single filers, and $10,000 per return for joint returns in its first year and then index the amount to an inflation factor thereafter. As a result, the maximum impact for any individual taxpayer would be a liability reduction of $213 per year for a single return and $425 for a joint return in the first year. Some taxpayers would not have sufficient income to fully claim the increased deduction amounts and would experience lesser reductions in liability. The bill would reduce state revenue by approximately $92.0 million per year, and the revenue reduction would increase by approximately $10.0 million to 15.0 million per year in later tax years as additional taxpayers turned age 67 and exemption amounts were indexed.
The bill had hearings on June 2 and 9, 2021 in the Senate Finance Committee at which SERA testified orally and in writing in support of the bill. Michigan Department of Treasury testified in opposition to the bill. Retired Detroit Police and Fire Fighters Association supported the bill. We suggested that the index for inflation should be the CPI-E which better reflects the market basket of expenditures for seniors than the CPI-U typically used for inflation indexing. The bill was reported out of Senate Finance Committee with four supporting (Runestad, Nesbitt, Daley, and VanderWall), none opposed with 2 abstaining (Bumstead and Chang) on June 9, 2021 and awaits further action by the full Senate.
History of the pension tax — In February 2011 when the tax overhaul was first proposed by Governor Rick Snyder, it would have totally eliminated three tax breaks for seniors: the extra tax exemption for being 65 or older; favorable property tax credit for those 65 or older; and an exemption from taxation of public pensions and most private retirement income. As a result of the protests of both senior organizations and individual seniors, the GOP sponsors scaled back the proposal and set up the three-tier, age-based tax treatment. Even though it softened the impact on those born before 1946, younger seniors and pensioners were estimated by the Fiscal Agencies to have paid $528 million more in state taxes for Tax Year 2012 alone. Likely that has added up to more than $5 billion from seniors’ pockets since then. In the tax overhaul, taxable pensioners and seniors were estimated to have contributed 36% of the increased taxes on individuals yet seniors are only 13% of Michigan’s population. So from our perspective, retirees and seniors were inordinately targeted in the 2011 tax overhaul and deserve some tax relief.
Take Action —We urge all SERA members to contact their State Senators and State House members to tell them of your support for repeal or significant modification of the pension tax. Simply say you want to repeal the pension tax and urge passage of HB 4002 or the equivalent. You can find their contact information at http://www.michiganlegislature.org.
If you feel shy about doing that, copy and paste these email addresses of the House Tax Policy Committee members into your email program’s To space to urge reporting out HB 4002 or the equivalent:
firstname.lastname@example.org; JulieBrixie@house.mi.gov; JulieCalley@house.mi.gov; MaryCavanagh@house.mi.gov; JimEllison@house.mi.gov; DianaFarrington@house.mi.gov; MattHall@house.mi.gov; StevenJohnson@house.mi.gov; PadmaKuppa@house.mi.gov; LukeMeerman@house.mi.gov; SheldonNeeley@house.mi.gov; JackOMalley@house.mi.gov; PatOutman@house.mi.gov; MarkTisdel@house.mi.gov; email@example.com