The Detroit News reports the tax was passed by the legislature this summer as part of a tax reform package to help finance a $1.8 billion business tax cut. The legislature eliminated most personal income tax exemptions and reduced the earned income tax credit for the working poor.
Governor Rick Snyder, a Republican, said it’s an issue of fairness to tax income in a similar manner, whether a taxpayer is retired or working, according to the Detroit News.
Under the new law, residents born before 1946 would continue to get the same tax breaks they have now, but younger retirees would have some retirement income taxed. The tax is expected to raise about $300 million a year.
The Michigan Supreme Court recently found the tax is not unconstitutional (see Michigan Court Approves Taxing of Pensions). Repeal bills have been introduced in both chambers of the legislature. Lawmakers also could reopen the bill that established the pension tax, the news report said.
Eric Schneidewind, president of AARP Michigan, said if the Legislature doesn’t act before it breaks for the holidays in two weeks, “Nobody has ruled out a ballot issue at this point.” The groups said they’ll campaign against lawmakers who voted for the law, starting with House elections in 2012.The groups include AARP Michigan, the Michigan Association of Retired School Personnel, the Michigan State Employee Retirees Association and the National Association of Retired Federal Employees Michigan Federation of Chapters.