Taxes on pensions
February 16, 2011
Taxes on pensions likely in Snyder’s budget plan
Governor’s budget chief also says some programs will be axed, but no mass layoffs
Detroit News Lansing Bureau
Lansing — Gov. Rick Snyder’s top budget official strongly hinted Tuesday that Snyder plans to tax pensions in the highly anticipated spending plan he will unveil Thursday.
“The people who are just on Social Security, you need to take care of those,” budget director John Nixon said, in an exclusive interview with The Detroit News, when asked if the government plans to tax pensions.
“The people who have six-figure pensions, why should they … ?” Nixon asked before breaking off the sentence and saying he did not want to disclose budget details.
Snyder wants his tax policy to be “simple, fair and efficient,” Nixon said. “Everybody who lives in Michigan benefits from the services of state and local government,” and tax policy should “make sure people are participating in the cost of the services they are enjoying.”
Of the 41 states that levy an income tax, only Michigan, Alabama, Mississippi and Pennsylvania exempt most or all public and private pension income from taxation. Public pensions are not taxed in Michigan, and private pensions are tax exempt up to $45,120 for individuals and $90,240 for couples filing jointly.
A 2007 House Fiscal Agency report pegged the cost of the exemptions for private pensions at $725 million. Nixon did not indicate where any new thresholds might fall.
Nixon also said: Snyder will announce the elimination of “entire programs” in the budget.
Employees may lose their jobs, though “I don’t think you’re going to see mass layoffs.” Significant savings will be found on the “supply side” of the prison system.
The budget was completed Tuesday and went to the printer.
“I’m sure there will be a lot of people that are upset with what we are doing” but “I think we can defend (the cuts),” Nixon said in his Romney Building office.
Snyder has said he plans to balance the state budget without tax increases. Though many seniors would see a tax on their pensions as a tax hike, Snyder has said he views tax exemptions, such as those on pension income, as “tax expenditures.” He considers their reduction or elimination as spending cuts, not tax hikes.
Seniors willing to help
Mark Hornbeck, a spokesman for AARP Michigan, said seniors are “willing to be part of a broad-based solution to make Michigan a better place to live and work.”
“AARP opposes solving the state’s problems on the backs of seniors if others aren’t asked to share the burden,” Hornbeck added. “We won’t support a tax on retirement income to pay for a business tax cut, for example.”
Snyder has promised to scrap the Michigan Business Tax and replace it with a 6 percent corporate tax. That change would result in a $1.5 billion tax cut for Michigan businesses, since the new tax would apply only to firms that issue stock, and most business owners would be taxed only on their personal income. Snyder also must erase a projected deficit that has been estimated as high as $1.8 billion but which Nixon said is now pegged at $1.4 billion.
Using a principle called “value for money budgeting” that was part of Snyder’s campaign platform, officials have been examining all state programs to determine whether they are producing desired outcomes, and that will continue, Nixon said.
“I will tell you the cuts are pretty significant, but I will tell you they could have been a lot worse,” he said, without offering any specifics.
“The reductions will be at different levels with different areas,” and “there are whole program eliminations that we are doing.”
Nixon said “state government is very labor intensive,” and “there will likely be positions lost,” but no mass layoffs. It’s hard to say if there will be any layoffs because the state has many unfilled positions because of early retirements, and further adjustments can be made through attrition, he said.
Lt. Gov. Brian Calley said in a luncheon speech last week that the Department of Corrections, which accounts for $1.9 billion of spending in Michigan’s $8.3 billion general fund, will take the brunt of the cuts Thursday in a budget he said would be like an atomic bomb hitting Lansing.
Nixon said Snyder doesn’t want to do anything that could endanger public safety, such as releasing thousands of criminals.
In addition to reducing the cost of pay and benefits for corrections officers, “there are certainly some things you can do on the supply side of Corrections that we’re looking at,” he said.
A ‘mass of anxiety’
Mel Grieshaber, executive director of the Michigan Corrections Organization, said he is concerned Snyder might try to privatize jobs such as prison food supervisors, teachers and mental health professionals, all of which are now primarily staffed by departmental employees.
“I’m a walking mass of anxiety” about that and other issues as Thursday approaches, said Grieshaber, who represents more than half of the department’s 16,000 employees.
Private workers in prisons could be a security threat, he said.
In Detroit on Monday, Snyder said he does not plan to cut the budget by reducing the rates doctors are paid for treating Medicaid patients, who total a record 1.9 million in Michigan.
On Tuesday, his officials said other Medicaid savings will be found, though they will not include reducing or eliminating optional services such as dental care, eyeglasses or prescriptions.
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