LANSING – Lt. Governor Brian Calley got right to the heart of lawmakers’ concerns regarding one of the biggest components of the governor’s budget – taxing pensions – as he delivered a series of examples Wednesday as to why Michigan’s current system is inequitable.

Calley said the entirety of Governor Rick Snyder’s tax reform initiative, which includes eliminating the Michigan Business Tax and switching to a 6 percent corporate income tax, is aimed at putting Michigan on a stronger financial footing and attracting jobs to the state.

Besides hitting on the pension tax issues, Calley also took aim at those thinking about extending the corporate income tax to other businesses – a proposal being floated in the Senate – by saying that taxing partnerships, LLCs, and other pass through companies will essentially revert the state back to the double taxation system in place with the MBT.

He said those entities will not only be paying income tax at 4.25 percent, but would also then pay the 6 percent corporate income tax.

“We think double taxation is unfair,” Calley said.

As for the pension tax, Calley said the state won’t be touching the $26 billion in Social Security benefits Michigan residents currently collect each year. Snyder has proposed eliminating the income tax exemption on public pensions and deleting the income threshold for taxation on private pensions.

Calley said the Department of Treasury ran the numbers on several scenarios, including one where an elderly couple makes $59,000 between their pension and Social Security. That couple receives an income tax return from the state for $780, whereas a working couple with two children earning $10,000 less will owe the state $1,073 in taxes.

In another example, a retired couple with $41,500 in income receives a net refund from the state of $548, essentially having a negative 1.32 percent tax liability. A non-retired couple with similar wages currently has a $1,164 tax liability, or 2.8 percent. Under Snyder’s proposal, the first couple would see their tax liability go to zero, which means they would no longer get a check back from the state, and the second couple would see their liability fall from 2.8 percent to 2.46 percent.

In all five of those scenarios, the couples qualify for the Homestead Property Tax Credit.

Calley said while it’s human nature to look at the concept of shared sacrifice from the point of where someone starts, but really people should look at the end result, which is to put everyone on equal footing under the tax code.

“It’s not about where you came from it’s where you land,” he said. “Everyone is taking part in the solution for Michigan.”

Calley said the administration wants to get at the needs of low-income residents through programs such as Medicaid and creating jobs, rather than giving different groups credits in the tax code.

“John Engler draws a pension from the state of Michigan. Is John Engler in need compared to someone working out there at a factory?” Calley said. “I’m not here to make the case treating everyone fair is easy. It’s simple, but it’s not easy.”

But Rep. Vicki Barnett (D-Farmington Hills) said there is a fundamental difference in the working versus retired family scenarios Calley laid out because those who are retired don’t have the opportunity to reenter the workforce if they need more money than what their retirement plan provides.

?There are no do-overs in retirement,? she said.

This story was provided by Gongwer News Service. To subscribe, click on Gongwer.Com

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