Those state tax changes – Are they fair to young, old?

By XINJUAN DENG
Capital News Service
LANSING – Debates about taxes on pensions and the middle class continue to rage in the Capitol with different groups disputing their fairness.
In the run-up to November’s House election, Democrats are attacking changes by the Republican-led Legislature that they say punish middle-class families, including a pension tax, reduced homestead property tax credit, reduced Earned Income Tax Credit and elimination of the $600 per child deduction.
But Gov. Rick Snyder said, “It is important to leave retirement pensions as they are for our citizens age 67 and older. We are able to move forward with a revised plan that still adheres to the principles I laid out with my budget and tax initiatives, will create jobs and protect the safety net for Michigan families.”
And Ari Adler, press secretary to House Speaker Jase Bolger, R-Marshall, said the Republicans are trying to reset the system to achieve fairness.
“That’s why there are no pension exemptions until age 67,” Adler said.
Democrats disagree.
Rep. Mark Meadows, D-East Lansing, said the turnaround in the economy is unrelated to the tax changes that take effect this year.
Meadows said, “The feedback we received from seniors and the middle class are pretty critical. We will fight any new middle-class tax which will be imposed this year or any future year because it doesn’t make sense to do it.”
He said the economy is rebounding and the state should return the money to citizens and seniors.
“The $300 million hit from those changes could be made up by the surplus that was developed this year,” he said.
Meadows joined Reps. Barb Byrum, D-Onondaga, Joan Bauer, D-Lansing and Kate Segal, D-Battle Creek in a call on Republicans to repeal the taxes changes at Hannah Community Center in East Lansing.
John Larson, a senior at the Prime Time Seniors’ Program at East Lansing, said, “I can’t afford these taxes and I am being directly impacted.”
He said the increased tax and a budget cut for the senior center means many seniors can’t take advantage of the center’s program.
Segal said there are too many people struggling because Republicans put the biggest burden on the income of the middle class and seniors.
“These changes were made to fund more than $1 billion in tax breaks for big corporations, effectively making Michigan’s poor and middle class pay for a hand-out to big businesses,” Segal said.
And Byrum said, “We hear constantly from seniors that their pensions have been reduced because of the pension tax and from homeowners that they even may lose some or all their homestead property tax credit. We hear from moms and dads that they will no longer be able to take the child care deduction for their kids.”
She estimated that 400,000 people who qualified for the homestead property tax credit would no longer receive it.
In addition to the tax on pensions, senior citizens will lose an additional $2,300-per-person tax exemption on top of the standard state income tax exemption. Last year, AARP of Michigan estimated seniors would pay $538 million more in total taxes annually.
AARP Michigan opposed the pension tax, largely because it will have significant impact on retirees who counted on the no-tax status of pensions when they made their retirement decisions, the organization said.
Craig Ruff, a senior policy fellow at Public Sector Consultants in Lansing, said the political arguments focused on two things.
The first was whether it is necessary to help generate revenue to lower state business taxes. The second was whether it is fairer that all income groups be taxed.
“Why should a 25-year-old journalist have to pay 4.35 percent state income tax when a 75-year-old retiree has to pay nothing on his or her pension? Certain other tax changes affected seniors, like removing an extra $2,300 in income tax exemptions because you are 65 or older.”
Sanjay Gupta, chair of Department of Accounting and Information Systems at Michigan State University, said the most practical strategy for Democrats or Republicans is to have a lower tax burden. That burden should be fairly distributed among taxpayers with different incomes.
“However, these are difficult goals to accomplish simultaneously. Hence a strategy that can have universal appeal is to push for as much simplification of the tax code as possible,” Gupta said.
“That can be accomplished by eliminating many of the preferences that currently exist, especially between how different types of income are taxed and how different activities are treated under the tax laws,” he said.
He said such a strategy could lower the tax burden for all.
Democrats have introduced legislation to eliminate the pension tax and restore the Earned Income Tax Credit for working families to its former level.
Sponsors include Reps. Brandon Dillon, D-Grand Rapids; Jim Ananich, D-Flint; Douglas Geiss, D-Taylor; and Phil Cavanagh, D-Redford Township.
The bills are pending in the Tax Policy Committee.