(Source: MIRS.news, Published 01/26/2023) Starting in the 2023 tax year, tax-free public pensions will be reinstated and tax exemptions will be available for employer donations and matches for 401(k)s under legislation that passed in the Senate 23-15 Thursday.
SB 1, sponsored by Sen. Kevin Hertel (D-St. Clair Shores), offering state income tax exemptions on employer-provided pensions and annuities, was approved this afternoon with an added substitute that ditched the legislation's original phased-in approach for gradual exemption expansions, making the change effective for the 2023 tax year.
Under the legislation, Michigan seniors would have two options: utilize the new tax exemptions that their retirement income qualifies for, or access $42,240 for a single return and $84,480 for a couple through non-restricted deductions.
Republican Sens. John DaMoose (R-Harbor Springs), Mark Huizenga (R-Walker) and Michael Webber (R-Rochester Hills) hopped across the aisle to support SB 1 with their Democratic colleagues.
Republicans attempted to offer several amendments to SB 1. For example, Sen. Joseph Bellino JR. (R-Monroe) presented an amendment creating a $500 per-child tax credit he said that millions of families residing across Michigan could benefit from. Huizenga introduced an amendment that would allow residents, after reaching 67 years-old, to take out an individual deduction of $50,000 or up to $100,000 for a couple, regardless of what their retirement income was.
Sen. Jonathon Lindsey (R-Brooklyn) offered up a substitute for Hertel's bill that would reduce Michigan's current income tax rate from 4.25% to a rate of zero, and Sen. Ed McBroom (R-Waucedah Twp.) offered an amendment to Hertel's timeline-related substitute that barred past and present state legislators from accessing the new tax exemptions on their own pensions.
The Republican efforts were each turned down.
"This should properly be called the 'Big Bonanza Public Pension Relief Act,' because if you're an average pensioner – the average pension runs about $24,000 – you get an exemption of $20,000 already," said Sen. Jim Runestad (R-White Lake) on the Senate floor. "If you have a 401(k) or an IRA, you get this crazy matrix. We've been working like crazy trying to figure this out."
According to the Senate Minority Leader Aric Nesbitt (R-Lawton), the relief associated with
SB 1 will be provided to less than one-third of Michigan seniors. He said the former president of the Michigan Education Association earning $148,000 through their pension will not have to pay taxes on their retirement income under the legislation, as well as the Genesee Intermediate School District's past superintendent with a pension providing them $188,000 per year.
"We should provide relief to all seniors, not just a select few. My friends, this is not a solution Michigan families and seniors asked for. They didn't send us here to pick winners and losers to create an unfair tax code, more complicated, more convoluted," Nesbitt said.
After the afternoon vote, Hertel told the media that the police and firefighters, who are mainly public pensioners, do not receive heavy pensions and do not qualify for Social Security benefits.
Hertel indicated he's willing to look into any options that address residents acquiring large-scale pensions, but he believes the bill that was approved in the Senate chamber today "provides the most amount of relief that we possibly can for seniors and retirees across our state."
In the bill's original phase-in form, the aforementioned exemptions were projected to cost more than $500 million after Fiscal Year (FY) 2027. Hertel said he imagines the costs of the revamped legislation to be pretty close to the projected number.
"Let's be clear, winners and losers were picked in 2011 when corporations won and retirees across our state lost," Hertel said on the Senate floor in relation to the 2011 income tax code that will be significantly altered under his legislation. "This bill will enable seniors to live, work and retire with dignity in our state. It will put an average of $1,000 back in the pockets of seniors in our communities."
In the House, Rep. Angela Witwer (D-Lansing)'s HB 4001 was also not amended, despite efforts from several Republicans.
The plan will remain on a four-year phase-in plan, with full effect in 2026.
House Republicans previously criticized the plan for its slower implementation, compared to legislation they sponsored that would take effect sooner.
Despite partisan hesitancy, the bill passed the House, 67-41, and was given immediate effect.
In addition to the slate of Democratic yea votes, Republicans who voted in favor included Reps. Brian Begole (R-Perry), Robert Bezotte (R-Howell), Nancy DeBoer (R-Holland), Graham Filler (R-St. Johns), Tom Kuhn (R-Troy), Mike Mueller (R-Linden), Kathy Schmaltz (R-Jackson), Bill G. Schuette (R-Midland), Alicia St. Germaine (R-Harrison Township), Donni Steele (R-Lake Orion) and Mark Tisdel (R-Rochester Hills).
