Michigan’s governor and legislative leaders have struck a compromise plan on the retirement income tax that would set up an age-based, three-tiered tax system for pensioners.
See Also: The End of Pensions? The effects of pension reform on an individual level
AARP Michigan opposes this plan. Like the original version proposed by the governor in February, the reworked plan raises taxes on seniors to help pay for a $1.7 billion business tax cut, while still reducing quality-of-life services in the state.
The compromise will increase taxes on pensions by more than $300 million. Retirees age 67 and older would remain under the current system, those in the 60-66 age range would get an exemption on their first $20,000 of income ($40,000 for couples) and those under 60 would pay the going state income tax rate on all pension income.
In general, AARP Michigan opposes age-based tax policies, and instead supports tax treatment based on need and that recognizes shared sacrifice.
“The shift amounts to an 86 percent tax cut for businesses, funded by a tax hike on individuals, mainly seniors and the working poor,” said Eric Schneidewind, president of AARP Michigan. “The governor calls this ‘shared sacrifice.’”
In addition, seniors and other homeowners would see a $200 million cut in the Homestead Property Tax Credit, which provides property tax relief enabling some to remain in their homes.
The state Earned Income Tax Credit, which provides $370 million in relief to low-income working families, would be eliminated.
At the same time, the budget proposal calls for more than $800 million in cuts to public schools, $140 million in reductions to local communities and $215 million in cuts to universities.
“So what do pensioners, the working poor and homeowners get for their tax increase?” Schneidewind said. “They get reduced services that would make Michigan a less attractive state for retirees, their children and grandchildren.”
AARP Michigan has opposed the governor’s tax and budget plan in legislative committee testimony and in private meetings with legislative leaders and the Snyder administration. AARP held a rally against the plan in March and followed up with a TeleTown Hall in April to educate members about the proposal.
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