Bill rolling back Michigan’s retirement tax heads to conference committee 

By: - February 2, 2023 5:50 am

Michigan Capitol, April 20, 2022 | Laina G. Stebbins

A bill that was set to change the state’s tax on retirement income is headed to conference committee for final negotiations. 

The Democratic-led Senate on Wednesday gutted House Bill 4001. There has been speculation that in addition to reforming the so-called pension tax and increasing the Earned Income Tax Credit (EITC) for working families — two top priorities for Gov. Gretchen Whitmer — that more tax changes could be made and additional funds could be routed to economic development.

Michigan economic leaders said at a January Consensus Revenue Estimating Conference that the state has a more than $9 billion surplus.   

Sarah Anthony

Senate Appropriations Chair Sarah Anthony (D-Lansing) said the Senate gutted the bill as a “procedural measure” to get the bill to a conference committee.

The Senate conferees are: Anthony and Sens. Sam Singh (D-East Lansing) and Dan Lauwers (R-Brockway Twp.). The House conferees are: Reps. Samantha Steckloff (D-Farmington Hills), Cynthia Neeley (D-Flint) and Greg VanWoerkom (R-Norton Shores).

But Republicans again slammed Democrats over procedure, with Minority Leader Matt Hall (R-Richland Twp.) claiming Whitmer is trying to “sneak through her secret tax hike.”

HB 4001 passed through the Senate Tuesday with a 20-18 vote, split among party lines. The bill was returned to the House.

In the House-passed version of House Bill 4001, introduced by House Appropriations Chair Angela Witwer (D-Delta Twp.), the state’s retirement tax would have been gradually rolled back until 2026, when the tiered system would be eliminated altogether. At that point, all taxpayers would be able to claim the maximum deduction of retirement and pension benefits.

Under that plan, retired Michiganders born between 1945 and 1959 could deduct up to 25% of the maximum amount of retirement or pension benefits in the 2023 tax year; 50% for those born between 1945 and 1963 in the 2024 tax year; 75% for those born between 1945 and 1967 in the 2025 tax year; and retirement pensions no longer would be taxed in the 2026 tax year.

The bill would also change the percentage of income tax collection that is deposited in the School Aid Fund.

The Democratic-led House took up HB 4001 with the Senate’s changes Wednesday afternoon, but it failed on a 53-56 vote, sending it to conference committee.

That’s not the only plan for changing the retirement tax.

Senate Democrats offered up a similar bill earlier this year, Senate Bill 1, introduced by Sen. Kevin Hertel (D-St. Clair Shores). 

SB 1 aims to amend the Income Tax Act to allow a taxpayer, beginning in the 2023 tax year, to choose to deduct, without further limitation, their eligible Federal or State public retirement and pension benefits, Social Security benefits and an inflation-adjusted amount for retirement benefits from another retirement or pension system or a retirement annuity policy. The Senate Democrats’ bill also aims to change the percentage of income tax collection that is deposited in the School Aid Fund.

Republicans also have offered their own legislation on the retirement tax.

This week, Small Business Association of Michigan (SBAM) President and CEO Brian Calley also said the Legislature should amend the retirement tax bills to allow private-sector retirees and working seniors to exempt up to $65,000 of pension and job income for single filers and $130,000 for joint filers. 

Rick Snyder (left) and Brian Calley (right) at their year-end press conference, Dec. 11, 2018 | Ken Coleman

“To be clear, SBAM is not requesting changes in current law. But since changes appear to be imminent, our small business owner-driven policy position calls for equitable treatment of small business workers and retirees,” the group said in a statement.

However, Whitmer criticized Calley Tuesday for changing his tune after he cast the tie-breaking Senate vote in 2011, when he was serving as lieutenant governor under GOP former Gov. Rick Snyder to ax retirement tax exemptions for people born after 1945.

“I count Mr. Calley as a friend, but I take issue with the fact that these are taxes that were imposed by the administration [on] which he served, that I’m trying to undo. So to come in now and suggest that we’re not going far enough to repeal the tax that they imposed on people … gives me pause,” Whitmer said during a press conference Tuesday.

Ron Bieber, president of the Michigan AFL-CIO, said that “undoing the damage done by the Snyder-Calley administration is rightly a top priority for the first pro-worker government in decades.”

“Unfortunately for Mr. Calley, some of our memories just aren’t that short,” Bieber said in a statement.

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Allison R. Donahue
Allison R. Donahue

Allison R. Donahue is a former Michigan Advance reporter who covered education, women's issues and LGBTQ issues. Previously, she was a suburbs reporter at the St. Cloud Times in St. Cloud, Minn., covering local education and government. As a graduate of Grand Valley State University, she has previous experience as a freelance researcher for USA Today and an intern with WOOD TV-8. When she is away from her desk, she spends her time going to concerts, comedy shows or getting lost on hikes in different places around the world.

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