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Michiganders with public pensions and other targeted retirement accounts could soon get new tax breaks under a bill passed by the state Senate Thursday, and the House approved a competitive plan with key differences.
The Senate measure passed 23-15, with three Republicans joining the Senate’s 20 Democrats in supporting it. The House bill passed 67-41. The thinking behind both bills is central to Governor Gretchen Whitmer’s legislative agenda.
However, Republicans who oppose the measure ultimately have the power to prevent the version that ends up flying from taking effect immediately. They wanted broader relief for more retirees, arguing the measures aren’t helping Michigan seniors enough.
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What’s on the invoices?
The Senate bill restores a tax break for public pensions, which was eliminated in 2011 under the then government. Rick Snyder. But it also creates new deductions for other retirement accounts, like 401ks, IRAs, and annuities.
Public pensions would be fully exempt from state income tax. The bill allows limited exemptions on income from other pension and retirement accounts: up to $56,961 for single filers and $133,922 for joint filers.
Democrats initially proposed that the waivers be rolled out gradually over several years, but amended the measure Thursday to ensure the changes would take effect by fiscal year 2023.
The House approved a very different version of a plan to exempt pensions and other income from taxes. The plan is being phased in over four years, with seniors eligible for larger deductions under a tiered system segmented by age.
Who does it help?
Democrats point out that the Senate is helping people who have public pensions, mainly those who had them before the 2011 change and expected them to be tax-free. Various jobs are eligible for these pensions, from firefighters and police officers to municipal governments and superintendents.
Advocates like Whitmer say the change could help former rank-and-file workers save more money. Opponents argue that the changes benefit a few, including retired government executives with six-figure pensions.
A Senate financial analysis of the original Senate bill that after full implementation was expected, the loss of tax revenue would likely exceed $500 million per year. A tax analysis of the house. of the original House bill estimated the loss of tax revenue at $450 million per year after full implementation.
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What do supporters and opponents say?
The Senate measure provides immediate relief to many of Michigan’s seniors, argued Sen. Kevin Hertel, D-St. Clair Shores, the main sponsor of the Senate legislation.
“My colleagues across the aisle have said that this bill will pick losers and winners. But this bill only creates more winners: no one’s taxes will go up because of this legislation,” Hertel said.
“This bill will allow seniors to live, work and retire with dignity in our state. It will put an average of $1,000 in the pockets of seniors in our communities.”
But Republicans argued that the Senate bill would only help about a third of Michigan seniors, saying most had no eligible retirement income or were not continuing to work.
Several Republican senators tried unsuccessfully to amend the Senate version of the bill, proposing to extend the bill’s tax benefits to more people.
“Working for the government for 30 years should not entitle you to a tax cut, while someone who waited tables for 30 years will pay full income tax,” said Senate Minority Leader Aric Nesbitt of the municipality. by R Porter.
“We should provide relief to all older people, not just a select few.”
The three Republican senators who joined their fellow Democrats in supporting the Senate measure were heartfelt. John Damoose, R-Harbor Springs; Mark Huizenga, R-Walker; and Michael Webber, Republican of Rochester Hills.
What happens next?
Either house’s version of the bill would have to be approved by the opposing body and signed by Whitmer to become law.
The Senate could prevent either version from taking effect immediately, where a bill needs two-thirds of the senators to support the immediate implementation of any bill. The Senate bill did not initially pass the body by such a wide margin. If that margin holds, the bill would likely take effect in early 2024.
Contact Dave Boucher: [email protected]
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