Seniors plot costs of pension income tax

By Kathy Barks Hoffman
Associated Press

LANSING (AP) — Marie Charnley didn’t know when she retired as a high school librarian in 2007 that a national recession was looming or that the steep drop in the housing market would mean the loss of $54,000 on a condo she was forced to sell cheap.

Charnley, 61, is now looking at paying an additional $1,400 a year in state income taxes that wasn’t in her retirement budget.

Starting Jan. 1, public pensions that were totally exempt from state taxes and other retirement income that was partially exempt will be taxed as regular income for those born after 1945, with the exception of Social Security payments and military pensions. That has many senior scrambling to figure out how much they’re going to have to shell out.

The changes are expected to bring in $330 million for the 2012 tax year, according to Treasury spokesman Terry Stanton. That’s an average of $870 per tax return filed by retirees, although the amount will vary by income.

Charnley, who lives in Leslie, said she’s upset the state is going back on a promise not to tax the pensions of public workers, a change the Michigan State Employee Retirees Association has vowed to fight in court.

“It was a deal made with me. I didn’t have to pay a state tax on my pension. Now they’ve changed in the middle of the road,” said Charnley, whose pension payments amount to $32,000 per year.

Charnley has started selling books and other media on the Internet to make up the loss on the condo, and she said she and her husband Jeff, a Michigan State University associate professor who’s still working, are doing OK. But she said she’s miffed that the extra taxes she’ll have to pay will be put toward making up for a $1.7 billion tax cut for businesses, and not toward schools or other services.

Gov. Rick Snyder’s “giving a big tax break to businesses on the backs of pensioners and the poor and the schools,” she said.

Michigan currently exempts all Social Security and public pension benefits from income taxes, as well as up to $45,120 a year for a single return and $90,240 on a joint return in private retirement and pension benefits. The cap increases annually with inflation. Those tax breaks have amounted to nearly $1 billion annually over the last few years.

The Republican governor 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. He says the system has pushed too much of the tax burden onto younger taxpayers. He wanted to tax all retirees but agreed to exempt those born before 1946. Six out of 10 likely voters polled last month by EPIC-MRA opposed taxing pensions even with older retirees exempted.

AARP Michigan, an advocacy group for seniors, estimates retirees will pay $538 million more annually under the new law once they pay taxes on pensions and lose special exemptions for those ages 65 and over and for interest paid to seniors. Many higher income retirees also may fail to qualify for an income tax credit on their property taxes because the credit will be phased out at $50,000 rather than $82,650, which also will cause them to pay more.

Ken Taylor, who retired two years ago after more than 31 years working for General Motors Corp. in Lansing, hasn’t had to pay state income taxes on the nearly $37,000 he gets annually from his private pension or the $24,000 his wife Sue, a retired Spanish teacher, receives from her pension each year. But that will change in 2012.

Although retirees born after 1945 and before 1953, among them the Taylors, will not be taxed on up to $20,000 of retirement income for single filers and up to $40,000 for joint filers, that still means an $870 bill for the couple from Dewitt Township just north of Lansing. They’ll also likely lose the tax credit on the property taxes they pay.

“If Snyder’s the pit bull and we’re the people out there he’s going to bite, I don’t know how much bite people can stand,” Taylor said last Thursday. “If this hurts seniors on pensions, it’s going to hurt everybody. That will be that much less disposable
(income) to go out there and do a bath or a kitchen (remodeling) or a car or a meal out or a vacation.”

Jim Paquet, a 61-year-old former state economic development specialist from Dimondale, began drawing a $41,000 pension two months ago. He said with a 19-year-old daughter in college and a 24-year-old son, he thinks it’s fair that retirees pick up a portion of the tax bill. But he said he’s skeptical that cutting corporate taxes will create many jobs.

“My impression of what the new law will do is essentially shift taxes from businesses to older people, and I don’t like that at all, especially when nobody is willing to say that the tax breaks being given to business will generate value. It’s all theoretical,” he said.