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Michigan governor attacked on bid to tax pension income of retirees

Republican Gov. Rick Snyder is drawing recall threats and protests over his attempt to do what no Michigan governor has tried in more than 40 years: Tax the pension and 401(k) incomes of millions of retirees.

The move has brought demonstrators to the Capitol and has thousands of seniors reminding the new governor that they could make re-election difficult for him and lawmakers who go along. Democrats oppose the move, and even some GOP lawmakers are casting about for an alternative to avoid raising taxes on a powerful interest group.

Snyder remains undeterred. The multimillionaire former Gateway computer executive said Michigan -- which has some of the nation's most generous senior tax breaks -- can't afford the $900 million it loses because of them and that retirees need to pay their share rather than pushing the burden onto younger residents.

Arnold Eick, 73, a former General Motors manager, said he needs those tax breaks to stay afloat. Like many retirees, he is incensed that he and the working poor who would lose a tax credit are being asked to pay more so Snyder can reduce business taxes.

"I just can't understand how anybody can be that unfair, that evil, to take from the poor and give to the rich," Eick said.

Michigan currently charges no income tax on public pensions and exempts up to $45,120 worth of income from private pensions, 401(k)s and IRAs for an individual retiree or twice that for a retired couple.

Treasury figures show that about a fifth of the tax returns filed each year include pension income.

Eick said his out-of-pocket health expenses hit $27,000 over a three-year period because GM took away health care for salaried retirees. If the pension exemption ends, the Flushing resident estimates he and his wife may owe $3,000 in annual income tax -- something he says could make meeting his mortgage payment impossible.

"We're going to have to leave our home," he said while carrying a sign promising retribution. "I'm old but I can recall two things," it said. "1. Tax refunds. 2. You."

Snyder campaigned last year on a promise to replace the complex and unpopular Michigan Business Tax with a 6 percent corporate income tax, a move that would eliminate $1.7 billion in revenue. But he didn't reveal until last month that he wanted to pay for it by requiring more money from individual taxpayers.

Snyder said the business tax cuts are needed to help the struggling state add jobs. He contends that Michigan should never have exempted public pensions in the 1960s or eliminated taxes on other retirement income since then. He also wants to eliminate a $2,300-per-person tax break for those 65 and over and reduce the credit seniors get for property tax payments.

Snyder said his plan doesn't hurt low-income retirees. Social Security payments would be exempt from the state's 4.25 percent income tax, and retired couples with $40,000 or less in income wouldn't pay any income tax on their retirement income.

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