Michigan tax code has been made fairer
A top union official said in a recent column that the elimination of the pension exemption in 2011 was the "first-ever tax on retiree pensions in Michigan history." That simply isn't true. The original version of the Michigan Income Tax Act treated all retirement income as taxable. Only in 1969 did Michigan elected officials grant a tax exemption to those lucky enough to work for the government and a select few others. Everyone else, including other seniors, kept paying their fair share. That exemption was not fair and certainly not sustainable given an aging society, tenuous economic times and a rising demand for senior services.
Many policy decisions made over the past four years center around creating fairness in Michigan's tax code. Today, the taxes you pay are based on your income source, not who employs you or where you retired from. Public or private, pension or 401(k), it doesn't matter. Gone are the days of tax perks for government or union workers at the expense of those working in and retiring from the private sector. Even with the elimination of exemptions, Michigan still has the third lowest flat income tax rate in the country.
Nearly 1 in 4 Michigan households has retirement income, which experts say is likely linked to the state's manufacturing history and aging population. If every one of these households had pension income, that would mean a quarter of Michigan residents prior to 2012 were not paying taxes on their income.
Yes, a pension is income. You can look far and wide and probably not find a soul who will say they enjoy paying their taxes. But income tax is part of living in a modern society. There is no fair or logical argument that someone who is 30 and makes $30,000 per year should pay Michigan's flat rate income tax, but someone who is 60 and makes $60,000 should not.
Many "the sky is falling" arguments were made in 2011 when the pension exemption was lifted. We heard cries of "all seniors will move to other states." But that hasn't happened. In fact, Michigan added population for the first time in 10 years. Our tax climate ranking grew from 49th to 14th. Our GDP, which was in dead last, is now the sixth fastest growing in the nation. Most significantly, our unemployment rate, which was 14.2 percent the year I took office, is now 7.2 percent. It has been cut in half thanks to more than 300,000 new private-sector jobs created since 2010.
Some still want to argue that making the tax code fairer wasn't fair to Michigan seniors. I believe your tax rate should be determined by your income and age, not by who you worked for. The old exemption gave special treatment to the select few who worked for employers offering pensions, and not the overwhelming majority of new and future retirees who have 401(k)s.
Others try to claim our tax reform hasn't helped workers find better jobs, but the indicators measured by economists show otherwise. Removing the special exemptions from Michigan's income tax law and spreading a flat tax rate has made Michigan stronger and more robust, and I am confident we will continue to see economic growth that benefits all of us.
State Rep. John Walsh, R-Livonia, is House speaker pro-tem.