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A few words on the pension tax and media revisionist history

by: Eric B.

Mon Feb 10, 2014 at 14:23:00 PM EST


The last week or so, I've noted a few media folks now rising to the defense of our benevolent overlord Rick Michigan's tax on pensions. I personally have no real dog in this fight, since I recognize that exempting some income while not other income is, in theory, a values-based choice and because the state was in a situation where it only made sense to revisit some of those previous choices. However, it appears we're headed down the path towards making some poor assumptions and then about to engage in revisionist history

Alright, the firsters, why exempt income from pensions from an income tax? THe obvious and cynical answer is that old people vote by the droves and someone extended this years ago as a way to bribe old people into voting their way. The follow up question is whether beyond politial expediency. The answer to that like in the greatest anti-poverty program we've ever had, Social Security. Nothing has been done to reduce poverty among old people than Social Security and a pension is simply Social Security except buffed out a little bit. It not only assures that grandmaw and grandpaw don't live on canned cat food, but that they can maintain dignity by preserving a semblance of their quality of life when they were wage earners. I mean, someone who retires on a portion of their working salary as a pension is going to take a hit in their lifestyle, but a pension at least guarantees that they don't have to lose all of their dignity while losing most of their spending power. And, since by definition people are retired then it means that someone has probably exceeded their peak earning potential. It's all downhill from there, kiddos, it's just a matter of how much you want to soften the landing. Selweski raises a different specter, that of the Cadillac-driving pensioner

Why should a couple of spry 68-year-olds who still work, earning $30,000 a year, plus a tax-free pension of $30,000, pay taxes on only half of their income when a couple of 60-year-olds with health problems, limping toward retirement on $30,000 in wages, pay taxes on all of their income?

Well first off, if you're two people earning $30,000 a year as a household, you're earning on average $15,000 a year per person which means neither of you is probably working full time. I mean, I work part-time for $9.20 an hour/24 hours a week, and I pull down slightly more than $12,000 annually from my job. Also, what does being spry have anything to do with tax rate? We're going to make old people pay higher taxes because they're healthy? At any rate, let's assume that the older couple that has retired and is still working is doing it because a) they want the benefits associated with staying active and b) despite their tax-free pension, they are having trouble making ends meet and need the extra income. I mean, again, we're talking about a married couple bring home $30,000 in household income annually. What kind of worker does Chad Selweski imagines earns on average of $15,000 a year?

The point is that pension income is different than income earned by young people because if younger people really resent their earnings, they can go out and attempt to change it. Retirees can be a greeter at Wal-Mart or work at Jo-Ann Fabrics.

To the larger point of fairness, this is where stuff starts to go revisionist. The pension tax wasn't passed in a vacuum. It was passed along with the repeal of the Michigan Business Tax and it's "job killing" surcharge. The budget deficit was not addressed by taxing pensions, per se, but by cutting spending. The pension tax and cuts to tax credits miraculously pay the same amount that repealing business taxes cost the state.

The change in business taxation was sold to us as tax fairness, because it was predicated on the idea that business owners pay taxes on the business and then taxes on the income from said business. It's a bullshit argument because what it really represents is a government subsidy for business. Businesses, no matter if profitable or not, still use government services: The courts, fire and police protection, zoning and planning offices, etc... What they sold those changes on was that businesses should only pay for those services in what the owner took home as profit. So, if a business was profitable, but those profits were put into business-related assets, then the business didn't have to pay for whatever government services it required through the year. And, since this only applies to businesses organized a certain way, it's government picking winners and losers in the marketplace, just not based on some coherent prediction of what the market might do but by work of bureaucracy.

And, by the way, the way the pension tax is structured -- as Selweski points out -- it's still not a matter of true tax fairness. If you wanted to tax pensions fairly, you'd tax them all, but they haven't. Younger people with bigger pensions are more apt to see a bigger tax burden than older people living on fixed pension incomes. It undercuts the entire premise that we needed to tax pensions just like everyone's inome for the sake of fairness. In fact, if it were a Democratic administration, we'd probably hear a bunch of bitching from the right about "progressive" taxation and how it drives rich people to live in Florida or some such nonsense.

Like I said, I'm not personally all that upset with the pension tax. It was a rich benefit and worthy of conversation in how to pay for services. In fact, lots of pensioners seemed willing to kick in a little more if the money went to making life better for everyone else. It didn't. That money went to subsidize business activity.

 

Eric B. :: A few words on the pension tax and media revisionist history
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When I retired (0.00 / 0)
it was done with certain assumptions regarding my pension income. Snyder giving $1400 of my money each year to businesses in exchange for nothing was not part of the calculation. BTW, "younger retirees with larger pensions" means retired auto workers.


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