Retirees want pension tax repeal included in Whitmer's 2021 budget plan

LANSING — It is time for Democratic Gov. Gretchen Whitmer to fulfill a campaign promise and repeal the state tax on pension income when her administration presents its budget on Thursday, retirees say.

Getting rid of the tax on pensions, introduced in 2012 under former Gov. Rick Snyder, a Republican, was a key promise when Whitmer won the governorship in 2018.

But more than a year after Whitmer took office, the tax remains in place, despite the fact majority leaders in both chambers say they support its repeal in principle.

For Doug Gooch, a Kalamazoo-area retiree with an engineering background who retired from a large corporation in 2013, "it looks like (an) unfilled campaign promise."

"Both my wife and I were born in Michigan and have spent our entire lives here working and raising our family," Gooch said Wednesday.

"I am frustrated and angry at this burden placed on retirees."

The term "pension tax" is a bit of a misnomer. The legislation pushed by Snyder didn't 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.

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

Whitmer included a proposal to repeal the tax in her 2020 budget proposal last year. But she tied the repeal to recouping lost revenue by expanding the 6% corporate income tax to thousands of Michigan businesses that are currently not subject to the tax.

That plan went nowhere in the Republican-controlled Legislature and was attacked as "a job-killer" by the Small Business Association of Michigan.

Whitmer spokeswoman Tiffany Brown and Budget Office spokesman Kurt Weiss would not say Wednesday whether Whitmer would propose a new plan to repeal the pension tax when Budget Director Chris Kolb presents the 2021 budget proposal to lawmakers Thursday morning. 

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Whitmer has said that Snyder used the tax on pensions to help pay for a massive business tax cut, so it was him — not her — who first linked the pension tax with business taxes.

"No one likes to raise taxes, but the hard truth is we've got to get to work," Whitmer told lawmakers during a joint session of the House and Senate appropriations committees in 2019.

"Every time we don't, we are jeopardizing our economic future."

But Ron Miakinin, a retired dentist in Rochester Hills, said it "seemed like kind of a shell game" to him.

"I was a small business owner, so I was not thrilled to see her proposed tax to make up for the pension tax," he said.

The extra burden for his family is probably only in the hundreds of dollars a year, Miakinin said, but seniors on fixed incomes did not have an opportunity to plan for the change and public officials like Whitmer should do what they say they are going to do, he said.

Gooch said he does not think repeal of the pension tax should be contingent on finding replacement revenue. "It was unfair to shift the tax burden over to those on a fixed income," he said.

Officials said last year that repeal of the pension tax would save more than 400,000 Michigan families an average of $800.

Michigan's corporate income tax, approved under Snyder when the Michigan Business Tax was eliminated, is a 6% tax that applies only to "C" corporations — ones with shareholders whose names usually end with "Inc." Thousands of other Michigan businesses, known as "S" corporations or "pass-through corporations," including partnerships and LLCs, were exempted from the tax.

Under Whitmer's 2019 proposal, owners of those types of businesses would be taxed only once on the income, but the income would generally be taxed at the 6% corporate rate, rather than at the personal income tax rate of 4.25%, as it is now.

For the newly taxed businesses, the first $50,000 would be exempt, while the state taxes paid would be deductible on federal income tax returns. The expanded business taxation was expected to net the state an extra $280 million a year — close to what would be lost from repeal of the pension tax. But after federal tax offsets, the change would cost Michigan business owners only about $105 million, said Michigan Treasurer Rachael Eubanks.

Whitmer's campaign website had a page titled, "Repeal the Retirement Tax," which made no mention of linking the repeal to finding replacement revenue.

"Getting rid of the Snyder Retirement Tax ... will put more money in the pockets of Michigan seniors to spend on things like gas, groceries and prescription drugs — which will help our small businesses grow and create jobs," the website said.

House Speaker Lee Chatfield, R-Levering, "will always support ways to lower the tax burden on Michigan families and help them protect their household budgets from the government," spokesman Gideon D'Assandro said.

Chatfield "encouraged the House to look into this proposal last year, and he looks forward to working with the budget committee and the governor to see how it could best fit into this year's budget proposal," D'Assandro said.

Asked whether repeal of the pension tax should be contingent on finding replacement revenues, he said Chatfield would defer to the legislative budget teams to work out the best policy for Michigan families with the governor.

This being an election year in the state House, there's a possibility a bill to repeal the pension tax could be approved by the Legislature without replacement revenue.

Rep. Joseph Bellino, Jr., R-Monroe, sponsored such a bill last year. It has been sitting in the House Ways and Means Committee since last February.

Given continued economic growth and consistent year-end surpluses the state has posted in recent years, "I think the money is there — I really do," Bellino said.

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