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AARP Takes Pension Tax Fight to Court

AARP Michigan is taking its fight against the state pension tax to another front – the Michigan Supreme Court.

Joining the State Employees Retirement Association and other retiree groups, AARP is filing a brief with the state’s high court challenging the constitutionality of the tax on public pensions. The Michigan Constitution specifically prohibits such a tax, AARP legal experts contend.

Oral arguments will be heard before the court on Sept. 7.

Gov. Rick Snyder proposed a $900 million tax on pensioners earlier this year and a scaled-down version of the plan eventually passed the Legislature. AARP Michigan staged a rally against the tax on the Capitol lawn in March and vehemently opposed the levy in testimony before legislative committees and in private meetings with political leaders. The tax represents a broken promise to retirees at a time when the economy is struggling and they can ill afford to pay new taxes.

AARP officials took exception to assessing a new tax on seniors, who had already made financial calculations regarding their retirement security, in order to provide a $1.7 billion tax cut for businesses.

“We’ve said all along the tax is unfair and we stand by that,” said Eric Schneidewind, president of AARP Michigan. “In the case of the tax on public pensions, it’s also illegal. We are trying to protect pensioners from paying an illegal tax.”

The National Active and Retired Federal Employees Association also is filing a brief. The Michigan Association of Retired School Personnel supports the challenge but did not file.

The tax bill passed by lawmakers sets up a three-tiered pension tax. Pensioners age 67 and older are exempt from the new tax. Those between ages 60 and 66 would pay the state’s income tax rate on pensions but $20,000 for individuals and $40,000 for couples is exempt. Those under 60 would pay taxes on all retirement income other than Social Security. When they reach age 67, they would get the $20,000/$40,000 exemption against all retirement income, including Social Security.

AARP’s brief notes that Dr. Ethel Percy Andrus founded AARP to advocate on behalf of retired school teachers who received inadequate pensions. AARP remains committed to safeguarding the economic security of its members.

The resolution of issues before the Michigan Supreme Court will have a direct and vital bearing on the economic value and market power of public employee retirement pensions in Michigan, the brief says.