AARP opposing Michigan pension tax in court filing
By TIM MARTIN, Associated Press
LANSING, August 10, 2011 (AP): The AARP and other retiree groups on Wednesday said they will argue before the Michigan Supreme Court that parts of the state's new tax on pensions are unconstitutional, particularly related to public employees.
The retiree groups filed a friend of the court brief on the matter this week. Republican Gov. Rick Snyder's administration says the tax is constitutional and has asked the high court to review it. Oral arguments are scheduled for Sept. 7.
Snyder signed the sweeping tax law in May. The new law will end income tax exemptions for some types of retiree income, including pensions, starting in 2012. Eligibility to continue existing exemptions will be based on when a taxpayer was born and other factors.
The AARP, State Employees Retirement Association and the National Active and Retired Federal Employees Association say the Michigan constitution prohibits taxes on public pensions as outlined in the new state law. The groups said the measure is unfair to those who would be forced to pay the income tax on retirement income, saying it takes away money from people who already had planned their retirements counting on a specific income level.
``Most of those people retire without ever dreaming they would be subject to a pension tax,'' said Eric Schneidewind, president of Michigan's AARP chapter. ``All of a sudden the state is presenting them with a tax bill.''
Michigan currently exempts all Social Security and public pension benefits from income taxes, as well as private retirement and pension benefits up to certain levels. The exemption on Social Security continues under the new law but other retirement will be subject to income taxes in some cases.
Residents born before 1946 will continue to get the same tax breaks they do now. But younger retirees would have some retirement income taxed, depending on when they were born.
The Snyder administration has said the new tax plan is fairer than the current system. Snyder has argued that it's not fair that a retired couple making about $100,000 a year pays no income tax while other Michigan residents pay the tax on virtually all their income if they're still in the workforce. He says the system has pushed too much of the tax burden onto younger taxpayers.
The Snyder administration has said it asked for the Supreme Court review in an effort to speed up the legal challenge process and prevent it from being tied up in court for years.