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Proposed repeal of Michigan ‘pension tax’ prompts fairness debate

March 19, 2019

Bridge Magazine

By: Lindsay VanHulle

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Fewer private-sector companies are offering defined-benefit retirement plans, what are traditionally considered employer-promised pensions. More are opting instead for defined-contribution, 401k-style savings accounts, to which employees contribute money and employers can match.

The public sector has been slower to make that change, said Lupher, of the Citizens Research Council. Many local governments struggle to set aside enough money to cover their full pension obligation, which they’re constitutionally required to pay out to retirees.

And Michiganders are getting older. In May 2008, the Citizens Research Council issued a report on the state’s fiscal future that noted that tax-exempt retirement income will limit state income tax growth as more residents retire.

“We’ve gone all in on these IRA-type plans, these self-investment type plans, for your retirement, and people aren’t investing enough,” Lupher said. “At some point, we’re going to have a lot of poor retirees, people working beyond retirement age, because they can’t afford to retire. And so levying a tax on top of that is, at some point, going to be kicking people while they’re down. But I think (policymakers are) trying to worry about: How are we going to fix the roads and how are we going to fund schools?”

Business groups that support keeping the tax in place, including the Detroit Regional Chamber and the Michigan Chamber of Commerce, say the decision eight years ago to tax more retirement income addressed the fairness issue.

“Everybody’s utilizing government services,” said Dan Papineau, director of tax policy and regulatory affairs for the Michigan Chamber. “I think it struck a balance between all seniors, in whatever financial situation they’re in.”

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