Whitmer to spend $half billion on tax break for wealthy

January 30, 2022

Governor Gretchen Whitmer wants to repeal what she calls the "retirement tax." That's what she said in her January 26 state of the state address. Doing so would give a tax break to some very wealthy people (as well as some who are just scraping by). Pensions are received by a wide range of people, including millionaires.

Calling it the "retirement tax" is misleading. Until 2012, pension income was excluded from Michigan's Individual Income Tax. There was no justification for this: pensions are income just like wages, profits, interest, etc. A bill passed in 2011 under Governor Rick Snyder phased out the exemption over a number of years.

There is no such thing as a "retirement tax". There is only an income tax, and it is made more fair without the pension exclusion. The exemption was not removed for anyone born before 1946, which means anyone who now is over 76 continues to get it.

The $500,000,000 cost of restoring the exemption comes from Whitmer's statement that repeal would mean an extra $1,000 on average for 500,000 Michiganders. A "retirement tax" of $1000 would mean a person's pension income would have to be $28,435 ($28,435 - $4,900 personal exemption x 4.25% tax rate = $1,000). That is $2,370 a month. And anyone over age 62 also gets social security benefits, which remain exempt.

Some pensions are indeed "fixed", but many get annual cost of living increases, including those of state and public school retirees. And many pension recipients find new employment. As an extreme example, Tom Reich, the Eaton County sheriff, has been receiving a $42,191 pension from Ingham County since 1998. Governor Whitmer doesn't think he should have to pay a 4.25% tax on it.

There apparently is no problem coming up with that $500,000,000. This is from a January 26 story in the Detroit Free Press:

The state has about $5.8 billion in anticipated surplus state revenues that it can spend now and about $15 billion in still-unspent federal stimulus and infrastructure funds that it can spend over the next several years, officials determined at a recent revenue estimating conference. The vast majority is "one-time" money, best suited for one-time expenditures such as capital projects, but Budget Director Christopher Harkins said the state has an extra $600 million or more a year from economic growth that could be used to fund new programs or reduce taxes.

If the state has so much money, why are so many Michiganders going hungry? Why are so many homeless? Whitmer has promised to "stay laser-focused on the fundamental issues and work to uplift the 1.4 million Michiganders facing poverty" (source), but she is missing the mark with restoring the pension exemption. How about helping people who are really in need, rather than the group most likely to vote?

I've written several stories on this issue over the years:

10/9/2014

Elderly state retiree defends pension tax

3/6/2019

The rest of us will pay for pension tax repeal

5/30/2020

I saved Michigan ~~$320~~ $500 million a year (about $4.2 billion so far)

6/22/2020

Subsequent legislation ruins Michigan's pension tax

Here's a 2/1/2022 story from Chad Selweski: Whitmer panders to seniors with her pension tax plan

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