Gov. Rick Snyder defended his proposal to tax retirement income even as angry retirees gathered at the Capitol on Tuesday to protest the change.
"I think there's a large group of silent people out there that are very supportive of this. They may not like it, but they're supportive," Snyder said Tuesday in a telephone interview with The Associated Press. "They understand shared sacrifice."
The governor's mantra of "shared sacrifice" isn't sitting well with many retirees, who planned a large rally. Groups opposed to Snyder's proposal to end a tax break for the working poor and deep budget cuts also were to attend.
AARP Michigan and the Michigan League for Human Services are the rally's main sponsors. They say Snyder wants to provide a $1.7 billion tax cut for businesses at the expense of seniors, low-income workers and children. Retirees are expected to have to pay close to $900 million more under Snyder's proposal.
The governor said it's not fair that a retired couple making around $100,000 pays no income tax while other Michigan residents pay the tax on virtually all their income.
"Shouldn't we all be paying at the same rate?" he asked.
The governor would exempt Social Security income from the income tax, which is 4.35 percent now and will drop to 4.25 percent under his budget proposal.
A low-income retired couple with under $40,000 in income who qualify for the homestead property tax would owe no income tax, Snyder said.
Michigan has some of the nation's most generous senior tax breaks, charging no income tax on public pensions and exempting up to $45,120 worth of income from private pensions, 401(k)s or IRAs for a retired individual or twice that for a retired couple.
Nine other states don't tax government pensions, but Michigan also exempts most private pension, 401(k) and IRA income from taxes and gives an extra $2,300-per-person tax break to those 65 and over. It also offers sizeable tax credits toward property taxes paid by seniors.
Snyder wants do away with the special tax break and reduce the size of the homestead property tax credit, but it's his proposal to tax retirement income that has drawn the most ire.
Many retirees say they might agree to have their pensions taxed if the money wasn't going toward a major tax cut for businesses. They also say they retired with the promise that retirement income wouldn't be taxed, and have few ways to make up the difference now that they're out of the work force.
The tax increases they'd face if Snyder's plan is approved by lawmakers range from several hundred dollars for those making over $40,000 to several thousand dollars for those with retirement income nearer $100,000.
Democratic lawmakers have said they oppose taxing retirement income. Some Republican lawmakers are unhappy with what they see as a tax increase, and are looking for alternatives.
Snyder said cutting business taxes and raising more individual income tax revenue will help create jobs and set the state on a sound financial path.
"It was a bad tax policy from the `60s . . . and we actually made it worse," he said of decisions by former Michigan leaders not to tax pensions and other retirement income. Eliminating the exemptions, he said, "is the right thing to do for our future."