State documents obtained by the Center for Michigan offer some of the most detailed glimpses yet of Gov. Rick Snyder’s income tax and pension tax plans.
The graphics below provide 16 scenarios approximating the proposed state income tax for many Michigan residents. See where you might fall, based on your income and family situation, and compare these charts to the bottom line on your most recent state income tax filing to see how you may be impacted if Snyder’s tax plan becomes law…
Click for the spreadsheet versions: Retirees & Working Singles & Families.
These conclusions were drafted by the tax experts in the Michigan Department of Treasury before the governor presented his budget proposal last week. Here are the raw printouts in four PDF documents: 1, 2, 3, 4. (Apologies for the somewhat confusing format of the PDFs – we’re reprinting exactly what we obtained.)
The documents shed light on early misinterpretations of the income tax plan, especially regarding taxes on pensions.
Outcry grew quickly when Snyder announced he’d tax pensions of both public sector and private sector retirees.
For example, the Detroit Free Press and Battle Creek Enquirer repeated the notion that this is a “granny tax.”
The Mackinac Center for Public Policy reported: “The most unfortunate part of the budget is the proposal to raise taxes on pensions … State officials must remember that taxpayers are not gentle sheep waiting to be sheared, and many won’t. In effect, the move charges a retiree with a $40,000 annual pension $1,700 a year for choosing to remain in Michigan rather than move to sunny, income tax-free Florida.”
More colorfully, a relative of mine living in Florida on a state of Michigan pension tossed this email grenade more representative of some of the talk radio buzz and feedback coming into politicians’ offices in Lansing: “This boiling pot called Michigan certainly needs fixing. On the other hand, I feel no responsibility to fix it just because I busted my ass for many years as a state employee. I’m sure many of the people calling for taxing our already taxed pensions are the same ones who always complained about state workers ‘doing nothing for big pay,’ the very same people who didn’t try to take a state exam (or weren’t smart enough to pass one), who didn’t know what they were talking about, who were just plain jealous. I hired in with the State and I always earned my pay. There were benefits promised me and ‘so to speak’ etched in stone. Now the Governor and politicians want to say ‘just kidding?’ I cut a bargain with the State in 1958, and now they want to back pedal and say ‘we don’t like what we agreed to?’ Looks to me like Rick Snyder and friends are Indian givers… Now I’ve really got myself riled up. Might as well get ready to march in Lansing.”
Under five different Treasury Department scenarios above, retirees with total pension and other income of $42,000 or less would pay no state income tax under Snyder’s tax plan.
Snyder’s tax plan may be many things, but according to the Treasury Department analysis it is NOT a tax on destitute grandmothers or other retirees with low fixed incomes.
In keeping with the governor’s stated ethic of transparency in government, The Center for Michigan has urged the Snyder administration to create an online calculator so every Michigan resident can see exactly how the tax plan would impact their pocketbooks. We’re told that idea is under consideration.
19 Comments
VERY interesting! Thanks for getting these numbers for us. I will definitely be citing this page on my blog.
Obviously missing from the Treasury chart is a column comparing the current tax to the proposed tax. This was done to hide the fact that seniors and low-income residents get rebates that amount to hundreds more under the current tax code. Also conveniently missing is an example of a taxpayer who will pay the pension tax and is a renter, so the homestead credit doesn’t provide much of an offset… plentyof those folks out there. This chart is blatantly slanted to support the administration’s tax reform plan. Hope to see your usual vigilence in future pieces on this issue.
Thanks for providing these charts. One thing I’m not clear on is whether investment income will still be exempt from state income tax for those who do not receive a pension. I agree with Mark’s comments above. Two other comments: these charts do not show the effect of losing the maximum $400 credit for certain contributions and I wonder why they call the Homestead Property Tax a “new refundable credit”.
What is missing is a definition of what a pension is to be taxed. I have heard private pensions, not public pensions. Then, public pensions included. I have heard IRA and 401k withdrawals, for retired or not, being included. Being retired, I do not consider withdrawing from my IRA a pension and my tax preparer does not. Federal and state taxes do not consider an IRA a pension. That does not matter. It is what the Michigan law will say. A pension is a fixed monthly retirement payment set by contract, paid by a separate entity.
Mark – We’re glad to publish any additional charts AARP has on this issue.
The real problem for all taxpayers is a reluctance to tax on a progressive basis, securing for the least able to pay a safe haven from excess taxation, the continuation (to the greatest extent allowed) of no double taxation and the retention of their saved money from confiscation through unreasonable property or use taxes. What is missing is a tax on the truly high income persons – for some earning over $ 50,000 a year, Michigan is a tax haven with its flat regressive tax. If you earn more than that, a few benefits of tax credits offset another $50,000 of earned income through donations to homeless shelters, public foundations, and the like. Now is the time for Michigan legislators to really end this lousy tax structure. Tax the highest paid, at a high level and leave the middle class and below, alone.
Go Bruce! Progressive is the way to go to make it fair.
I think a calculator is a great idea. I could’t find any example close to my situation. Some just don’t look right. For instance, I don’t trust the $20,000 pension and $22,000 in social security. I don’t think those match up based on my working salary, and now pension and social security. We (people contemplating retirement) use both a state and social security calculator or estimator and they turned out very accurate for me.
To Bruce: Yeah, tax us “rich” (over $50,000) folks more! The “poor” people can’t move to Florida as easily as we can! Then you all will be “poor”–wouldn’t that be wonderful? ILIKE your idea!!!
The “progressive” income tax proposal was put before Michigan voters three times. And it was shot down in flames three times in a row.
And as I mentioned on several other threads, and Mr. Seabright pointed out again above, those with the means will leave Michigan and take their money with them.
After that happens, you’ll have less revenue for Lansing to collect, even more vacant homes on the market driving down home prices (and property taxes) and more people not frequenting Michigan businesses still trying to survive in this economy.
Is that what those clamoring for higher taxes (including The Center) really want?
The reality of “people leaving because of taxes” is that it’s a total canard. If that were true, Mississippi would have all the millionaires in the nation living there. Look at the data:
http://www.phoenixmi.com/images/uploads/pdf_upload/StateRankingsMillionaires20062010.pdf
You will see that the states with the most millionaires/10,000 residents are Hawaii, NJ, Md and Conn — all have progressive income taxes.
The states with the fewest are Miss, Ark, Wv. and Ky…states with low taxes in general.
In the Midwest, Illinois (higher tax state) is 11; Ind (low tax state) is 37. California ranks 9th; no-tax Texas is 28th, even with all the oil wealth.
Sorry. Facts are troubling things.
So, taxes play absolutely no role in people staying and paying?
Care to explain New Jersey?
Maryland?
New York
Oregon?
And even Rhode Island of all places?
Those facts can just bite you in the you-know-where sometimes.
Thank you for publishing the charts.
Please answer and/or reflect on these questions:
What is the purpose of state government?
How much does that cost?
What do you really value and what is that worth?
KG: Don’t confuse numbers with causality. Just because there are fewer millionaires in New Jersey or Maryland doesn’t mean they left…it probably means most suffered a little during the recent recession…and they’ll be back. Look at this about MD…and same to others.
http://www.itepnet.org/pdf/MD_Millionaires.pdf
Where are they realistically going to go? To Mississippi, where middle class families are forced to pay tuition on top of taxes to get their kids to decent schools?
You are offering newspaper anecodotes based on some prelim numbers, not facts.
Probably?
Did you catch this on page 2?
I hope that you’ll also forgive my skepticism about a group that has issued a similar report drawing the same conclusion on Oregon.
You don’t want to accept newspaper articles as fact, then how about hearing what happens straight from the people it affects? (start at the 1:30 mark)
Some one please explain to me why the sales tax,(which is a tax on consumption) is being left alone when all those visitors to Mi could help us pay for our state expenses?? Seems to me this would be more beneficial than taxing seniors who if I remember correctly are the main body of VOTERS in the state!!!!
My husband and I are 62 and 61, respectively, and retired. We have contributed to the social security fund for some 45 years. We’ve lived modestly with our 3 children and saved for retirement. We both collect pensions; one of which is from the State of Michigan. We do not object to paying Michigan income tax on our pensions. We object to Social Security being taxed as the government has been earning interest on our money for some 45 years, have diverted funds and have not kept watch over fraud within the system. We are willing to do our fair share in helping the State get out of its economic slump on two conditions: (1) that the economic problem of Michigan is in fact resolved by our legislators staying steadfast on their road to economic recovery, and (2) that “every” citizen contributes monetarily to resolve the problem. We believe that “every” citizen should pay income taxes; a set flat tax would be ideal. This way, everyone would pay say 5% of their income to the State. Based on news reports, some 45-50% of the population don’t pay any federal income tax. Who are these people? Welfare grinds us. We’re not insensitive but my brother rents to welfare families and the adults send their teenagers out to have more babies just to have more money coming to them from the government. They refuse to go to work or even look for a job. They even brag that they pay a portion of their gas/electric bills because the utilities simply write off the unpaid amount as uncollectibles. Then people wonder why their utility bills are rising. Just who do you think absorbs these unpaid utility costs? We would propose that any citizen in Michigan get a maximum of 5 years on welfare in their lifetime. Another option…. the government will compensate an individual for birthing one child only. I truly believe that churches and neighbors will come together to assist those families truly in need and no one will be left unfed, uneducated, unclothed or homeless. We voted for change in the most recent election and we will vote for change again in 2012. I give credit to Governor Snyder for making some tough policy changes. We citizens need to stick together and be willing to sacrifice as long as “all” segments of society sacrifice in helping our State of Michigan stay on the road to economic recovery.
Taxes help Michigan run. I have no problem with that but the working people are the ones paying most of taxes. If the people that are responsible for the spending were more responsible for where the money was spent I don’t think our state would be in financial trouble.
The higher legislaters have not taken any of the financial burden into their pay checks so why should the blue collar worker?