INKS: Ending pension exemptions a justified cut
When Governor Snyder announced his 2012 budget proposal, one of the key components was a plan to end the exemptions for pension plans.
This was met with outrage by seniors, and last week AARP held a rally wherein over 1,000 seniors protested the plan to tax pensions.
But why should income be free from being taxed just because the person is retired? Only Pennsylvania, Illinois, Hawaii, Alabama and Mississippi have larger retirement plan exemptions than the state of Michigan; however, Michigan also has exemptions for some plans that Hawaii, Alabama and Mississippi do not exempt.
The current exemption in Michigan is $45,120 for private pensions, while public pensions are completely exempt. Why should a retired person making $40,000 a year from his pension be exempt from having his income taxed, while a recent college graduate making $20,000 would still have to pay the 4.35 percent state income tax?
Some people have claimed that taxing pensions will unfairly burden seniors because they will be taxed twice, once on the income which they contribute to their retirement plan, and once when they receive the benefits. These claims are not only unfounded, but blatantly untrue.
For pensions where only employers pay into the pension plan, original income tax on the contributions would not apply to employees, and for pensions where employees pay into the plan as well, the contribution is not factored into the individual’s adjusted gross income.
So if the money is not taxed when it’s put into the plan, and it’s not taxed when it’s paid to the individual during retirement, this is essentially cheating the tax system.
Times are tough, and nobody wants to pay taxes, but allowing seniors to exempt income from pensions is not only fiscally irresponsible for Michigan, it is also unfair to young people and people who are working who still have to pay taxes on their incomes.
It is time to end the discriminatory practice of exempting pensions from being taxed, and people who are have to pay taxes on their wages should welcome this change as bringing fairness to the tax system in Michigan.
