A national study questions whether financially strapped Michigan should continue its generous tax exemptions for retirees on pensions.
If retired public employees, those on private pensions and withdrawals from IRAS and similar retirement plans that are currently exempt were taxed, the state could collect as much as $700 million more a year according to figures from the state treasury, the Detroit Free Press reported Sunday.
A recent study by the Pew Center on the States questioned the wisdom of those exemptions. The study ranked Michigan among the 10 most financially troubled states and said it has a growing elderly population that requires more state services but contributes little revenue.
About 95 percent of Michigan residents 65 and older don’t pay any state income tax, including some who earn $100,000 a year or more from pensions, Social Security and IRA and 401(k) withdrawals. Those who work don’t get the same tax breaks.
The report recommended the state — which currently exempts more retirement income than any of the other 42 states with income taxes — consider taxing retirement income.
State budget director Bob Emerson, a former lawmaker who draws an $80,000 state pension, advocates taxing retirement income as part of a tax revision.
“My son, who works his butt off as a chef in Oakland County, he makes in the mid-$30,000s,” Emerson said. “He pays 4.35 percent in state income tax. I get a public pension that’s greater than his salary, and I’m not taxed on that. Someone explain the fairness of that.
“If you’re going to have a fair tax system, you should tax all income equally. That’s my personal opinion.”
